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THE 



PRINCIPLES 



POLITICAL ECONOMY. 



Br HENRY VETHAKE, L.L.D. 

ONE OF THE PROFESSORS IN THE UNIVERSITY OF PENNSYLVANIA ; 

A MEMBER OF THE AMERICAN PHILOSOPHICAL SOCIETY ; 

&C. 



PHILADELPHIA : 

P. H. NICKLIN & T. JOHNSON, LAW BOOKSELLERS, 

No. 2 South Sixth Street. 



1838. 



r- r ^iA Xt 



\ 



'^ 



Copy -2- 



Entered according to act of Congress, in the yc^r 1838, 

By Henry Vethake, 

in the oflSce of the Clerk of the District Court of the Eastern Dietrict of Pennayl- 



By •••for f^»« 
Aj|>rU 16H> 



TO THE NUMEROUS YOUNG MEN WHO, AT DIFFERENT PERIODS DURING 
THE LAST SIXTEEN YEARS, HAVE ATTENDED HIS LECTURES ON POLI- 
TICAL ECONOMY, 



jCfte eoUotoing ^Treatise, 



EMBRACING THE SUBSTANCE OF THOSE LECTURES, TOGETHER WITH 
SUCH ADDITIONS AND ALTERATIONS AS HAVE BEEN SUGGESTED BY 
HIS LATEST REFLECTIONS, IS 

INSCRI BED 

BY THEIR FRIEND, 

THE AUTHOR. 



CORRECTIONS. 



Page 28 — filh line from the bottom, for " transference" read " transfer." 

] 10 1st line from the top, omit the words, " those circumstances which 

constitute." 
126 — 12th line from the top,' for " them" read " these." 
]^27 — last line on the page, for "positions" read " propositions." 
133 — l.'ith line from the bottom, after "of" read " a." 
159 — ]5th line from the top, for" thing-" read " things." 
167 — 16th line from the top, for "provided" read "especially if." 
170 — 8th line from the top, insert after the word " importation" the words 

" or production." 
222 — 17th line from the top, in place of the words " in order to lend it" read 

" to be lent." 
251 — 2d line from the bottom, for" manner" read " matter. 
288— 5lli line from the bottom, for " 1B32" read " 1833." 
306— 13th line from the top, for " phiianthrophist" read " philanthropist." 
332 — 14lh line from the bottom, for " will" read " shall." 
334 — 5ih line from the bottom, for "er-onomist" read "economists." 
371 — 8lh line from the bottom, for " visits" read " visit." 
376— iOlh and 14th lines from the bottom, for " tithes" read " the tithe." 
395 — 15tli line from the top, after the word "government" insert, " to be 

consumed by it unproductively." 



PREFACE. 



The following treatise is a systematic exposition of the 
principles of political economy. Avoiding almost all refer- 
ence to other writers whose opinions differ from his own, and 
avoiding also any direct notice of the controversies which 
have been agitated by the many distinguished men who have 
successively occupied the path of investigation in which he 
has ventured to follow them, the author has aimed to arrange 
the various topics comprehended in his general subject in as 
logical an order as is practicable, and in a manner the best 
adapted for the instruction of the student. 

The difficulty, however, of accomplishing the objects aimed 
at has been realised by him to too great an extent, for him to 
suppose for a moment that he has succeeded in doing more, 
than approach somewhat nearer to their accomplishment than 
he would have done, but for the efforts which he has repeatedly 
made during the delivery of his lectures, in a period of not less 
than fifteen years. Much of this difficulty, it may be observed, 



PREFACE. 



arises from the circumstance of there being scarcely any one 
topic, in the whole range of the science of political economy, 
which has not relations less or more numerous with almost 
every other. Writers on the subject who make a rule to them- 
selves to treat of every topic in succession under a separate 
head, never formally returning to it the second time, labour for 
this reason under a great disadvantage. The author has not 
hesitated to sacrifice every consideration, in respect to 
arrangement, to that of being enabled to advance from the 
beginning to the end of his treatise without taking any pro- 
position for granted, the truth of which he had not previously 
endeavoured to establish. 

He has, besides, in no case made use of any technical term, 
without first defining it with as much exactness as was in his 
power, or without defining it immediately afterwards. 

And it may be proper to state that, to adapt what he has 
written still farther to the purposes of instruction, he has 
divided it into a great number of short chapters ; thus aflford- 
ing frequent resting places, whence the student can look back 
and survey the ground over which he has advanced. 

But while his work is ofTered to the colleges, and other 
higher seminaries of education in our countr}', as a text-book 
of instruction on the subject of which it treats, he is desirous 
of having it understood at the outset, that it is neither a com- 
pilation from the works of others, nor a mere elementary 
treatise. It is hoped that the political economist will find in 
it enough of novelty, and of novelty that is consistent with 
truth, for him not to regret the time which he may have 
bestowed on its perusal. 



PREFACE. VII 

Among those parts of the present treatise which the author 
himself is disposed to regard as most worthy of attention, 
is first, the manner in which the whole subject is introduced ; 
the definitions not being arbitrarily given, but, on the con- 
trary, being simply the assignment of names to classes of 
objects. The classification itself, too, is always founded on 
the nature of things ; and the names are assigned as much as 
possible in accordance with common usage. 

In the next place, the hold innovation has been attempted 
of comprehending as well immaterial or intellectual products 
as those which are material, not only under the definition of 
wealth, but likewise of capital. What are the advantages of 
doing so, need not be here stated. The author will now only 
remark that the simultaneous extension in this manner of the 
terms wealth and capital he considers to be of no slight 
importance, to enable the reader to take a proper view of 
the whole ground which it is proposed to explore ; and that, 
perhaps contrary to first appearances, our language in refer- 
ence to both capital and wealth will become thereby more 
accordant with the ordinary modes of speech, than would 
otherwise be the case. Should the reader, after having 
advanced through the fourth chapter of the first book, hesitate 
to yield his assent to the propriety of the definitions in ques- 
tion, he is earnestly requested, when he shall have finished the 
perusal of the sixth chapter of the same book, to reperuse the 
preceding fourth chapter. If his doubts of that propriety shall 
then not have been removed, so confident of it is the author, 
that hi would still be disposed to say to him what D'Alembert 
is reported to have said to a young aspirant after knowledge, 



Vlll FBEFACE. 

who, in despite of all the explications which that distinguished 
mathematician could give him of the metaphysics of the cal- 
culus, was obstinate in disbelieving their validity ; to wit, to go 
on with the study of the subject, and faith will in the end 
infallibly come. 

The author would direct the reader's attention particularly 
to the manner in which the theories of rent and of population 
have been explained and modified, — theories which lie at the 
foundation of all that follows, and without a due understanding 
of which, what follows will appear altogether confused and 
unintelligible. Those theories are now presented in the same 
form as that in which they have been deUvered in the author's 
courses of political economy, beginning so long since as the 
year 1822. His views too, as they appear in the present 
treatise, relating to population, in connexion especially with 
the subject of pauperism, were published in one of our Ameri- 
can annuals, in 1834.* 

It may also be mentioned that political economy is not 
regarded in the present treatise as a science only of a 
hypothetical description, and as having no necessary con- 
nexion with the administration of public affairs, or with the 
transactions of private life. So far from this, one great object 
which the author has had in view, has been to point out its 
application to both of these ; and to the moral relations of 
the science, — relations which, in his opinion, confer upon 
it its principal importance, — he has given a pecuhar promi- 
nence. 

*" The Anpual of the Board of Education," edited by the Rev. John Breckin' 
ridge, D. D. 



PREFACE. IX 



Every effort, moreover, has been made to exhibit the 
doctrines of political economy in as concise a form as is 
consistent with perspicuity, in reference to the convenience as 
•well of the student, as of such persons as may already be 
acquainted with the existing state of the science. The former 
would, very probably, be repelled from the study of a much 
larger treatise ; and the latter would be quite as likely as any 
other class of persons, to look upon a great book as a great 
evil. 

The conciseness just mentioned, together with the compli- 
cated nature of the subject, — every topic which it embraces 
having numerous relations to almost every other, as has been 
already stated, — would have rendered it impossible for each 
separate chapter of the work to have been so written as to 
be wholly intelligible to one who had not systematically 
perused the preceding chapters. While the author, then, will 
not be guilty of the affectation or weakness of deprecating 
criticism, he asks of every individual who wishes to deal 
fairly with him, or with his subject, not to commence the 
perusal of this volume at the middle or end, but to commence 
at the beginning of it. 

With these remarks, the present treatise on political 
economy is respectfully submitted to the pubUc. 

Philadelphia, Feb. 1st, 1838. 



TABLE OF CONTENTS. 



BOOK FIRST. 

Page 
Definitions of terms ; and the theory of value. 

Chapter I. — Definitions of utility and wealth — Object of 

political economy. 13 

Chapter II. — Relation of utility to wealth illustrated — Defi- 
nitions of labour, value, &c. 17 

Chapter III. — Nature of money — The precious metals consti- 
tute the money of the world. 23 

Chapter IV. — Definitions of capital, of the wages of labour, 
and of the accumulation of wealth — Immaterial as well 
as material products the subjects of accumulation. 26 

Chapter V. — Constituent elements of capital — Productive 
and unproductive consumption — Distinction of capital 
into fixed and circulating. 32 

Chapter VI. — Distinction between the labour which is produc- 
tive and that which is unproductive — Why it may be 
dispensed with. 35 

Chapter VII. — Influence of supply and demand in determin- 
ing the exchangeable value of a commodity. 40 

Chapter VIII. — The same subject continued. 46 

Chapter IX. — Natural as distinguished from market prices — 

Natural wages. 50 

Chapter X — The subject of natural wages continued. 53 

Chapter XI. — Natural prices — General rate of profits — Trans- 
fer of capital. 57 



Xll TAULE OF CONTENTS. 

Page 

Chapter XII. — Subject of natural prices continued — The 
ordinary rales of profits — Determination of the prices 
of conimodilies by the cost of producing them. 61 

Chapter XIII. — EfTocts of monopolies on prices. 64 

Chapter XIV.— Of rent. 68 

Chapter XV. — The subject of rent continued — Distribution of 
tiic weallh produced, among the different classes of 
latidlurds, capitalists, and labourers. 71 

Chapter XVI. — The dillerent modes in which the cost of pro- 
duction, and therefore prices, may be made to vary. 74 
Chapter XVII. — The price, or exchangeable value, of any 
thing cannot be regarded as determined in every 
instance by the quantity of labour applied, from first to 
last, in producing it. 80 

BOOK SECOND. 

On the tendency of rents, profits, and wages, to rise or 
fall in the progress of society ; — together with the 
laws which determine the numbers of a people. 

Chapter I. — Effects of the diminishing returns from the land 
upon the exchangeable value of the different products 
of industry, and upon rents — Objections to the theory 
of rent refuted. 85 

Chapter II. — Farther effects of the diminishing returns from 
the land on the exchangeable values of commodities, 
on the sum of profits and wages, on profits, and on the 
increase of population and wealth. 90 

Chapter III. — Effects, in an opposite direction, of the progress 

of human invention. 94 

Chapter IV. — Intimate connexion of the subjects of wages 

and population — Checks to population. 99 

Chapter V. — The subject of population continued. 105 

Chapter VI. — The same subject continued — Habits of the com- 
munity in relation to marriage — How those habits are 
to be improved. 110 



TABLE OF C0NTENT3. xiil 

Page 
Chapter VII. — Means of enlarging the desires of men, and of 
inculcating upon them habits of foresight — Influence 
of moral causes in determining the command of the 
community over the necessaries and luxuries of life. 115 
Chapter VIII. — An increase of population not a criterion of 
national prosperity — Emigration from, and immigra- 
tion into, a country — Importance of capital augmenting 
at an uniform or accelerated rate. 120 

Chapter IX — Effects of cheap or dear food on the numbers 
and condition of a people — And effects, on their num- 
bers, of an extraordinary mortality, of improvements 
in medicine, and of the monastic institutions. 124 

BOOK THIRD. 

The theories of money, and of banking. 

Chapter I. — On the comparative value of gold and silver 
money, in different countries, and at different times in 
the same country. 130 

Chapter II — The same subject continued. 135 

Chapter III. — The same subject continued. 139 

Chapter IV — Effects of the use of paper money. 143 

Chapter V. — Of the different constituent portions of the circu- 
lating medium ; and their relative efficiency. 148 
Chapter VI — The value of the entire circulating medium 
remains always unaltered — Consequences from this 
principle. Iqq 
Chapter VII.— The different kinds of banks— How the credit 

of banks of circulation is maintained. 153 

Chapter VIII. — Tendency of bank notes to expel specie from 
the circulation — Manner in which the notes issued by 
one bank check the issues of another. 167 

Chapter IX — Impossibility of permanently expanding the 
circulating medium of a country beyond the amount 
which is determined by the cost of producing the 
precious metals. , ig2 



XIV TABLE OP CONTENTS. 

Page 

Chapter X. — The advantages, real or supposed, of a bank 

note circulation. 166 

Chapter XI. — Disadvantages of the American system of bank- 
ing. 172 
Chapter XII. — The same subject continued. 177 
Chapter XIII. — The same subject continued. 182 
Chapter XIV — Evils improperly attributed to banks of circu- 
lation — Effects of exacting a bonus from the stock- 
holders of a bank as a condition of its being incorpo- 
rated — And effects of the government of a country 
assuming to itself the business of banking. 186 
Chapter XV. — Comparative advantages and disadvantages of 
many or of a few banks of circulation — Remarks con- 
cerning a national bank — and concerning a free trade 
in the business of banking. 192 
Chapter XVI. — Liability of a currency to be more expanded 
or contracted, according as it consists in a greater 
degree of paper money — Inference to be drawn. 195 
Chapter XVII. — The most desirable circulating medium for 

the United States. 200 

Chapter XVIII. — Mode of abrogating the existing banking 

system of the country. 206 

Chapter XIX. — Suspension of specie payments by the banks. 211 
Chapter XX. — Debasement of the currency. 217 

Chapter XXI. — On the interest of money. 218 

BOOK FOURTH. 

On the productiveness in the same degree of the dif' 
ferent branches of industry ; and on the interference 
with the natural distribution among them of labour 
and capital. 

Chapter 1. — The question of the peculiar productiveness of 

agriculture examined. 225 

Chapter II. — Productiveness of commerce — The commerce of 

speculation — Dealers in money. 231 



TAHtE OF CONTENTS. XV 

Page 
Chapter III. — Of commerce with a foreign country — Doctrine 

of the balance of trade. 235 

Chapter IV. — The subject of the balance of trade continued. 241 
Chapter V. — On the amount of the duty upon a commodity, 
when it is imported from abroad, which will administer 
adequate encouragement to the domestic producers. 244 
Chapter VI. — Discussion of the " tariff question." 248 

Chapter VII. — The subject continued. 251 

Chapter VIII. — The same subject continued. 255 

Chapter IX — The same subject continued. 261 

Chapter X. — Effects of bounties — Modifications of the system 

of free trade. 266 

Chapter XI. — Of the most expedient scale of duties — Inter- 
ferences with the system of free trade farther consi- 
dered. 272 
Chapter XII. — The same subject continued. 278 
Chapter XIII. — The same subject continued. 285 
Chapter XIV. — On the terms American system, and American 
industry — Remarks on the doctrine that a tax upon 
foreign imports is incident on the producers of the 
commodities which are exported in exchange for them. 292 

BOOK FIFTH. 

On the interference of individuals and of governments 
with the natural order of things, founded on other 
grounds than the unequal productiveness of the dif' 
ferent branches of industry. 

Chapter I. — Analogy on the effects produced by the inter- 
ferences of individuals and of governments with the 
natural distribution of capital and labour — The question 
examined, as to what proportion of a person's income 
it would most contribute to the national welfare for him 
to save. 298 

Chapter II. — Mode in which governments have interfered 
with the unproductive expenditure of individuals — 
Mistaken notions by which the action of governments 



XVI TABLE OF CONTENTS. 

Page 

have been sometimes influenced — Application of the 
principles of political economy to the " temperance 
question ;" and to the bestowing of money for religious 
and philanthropic purposes. 304 

Chapter III. — Ought a preference to be given to one branch 
of industry over another, because of the greater num- 
ber of labourers employed by a given amount of 
capital ? — Whether roads and canals should be con- 
structed by governments, or by individuals ? 311 
Chapter IV. — Encouragement of intellectual products. 317 
Chapter V. — Effects of a division of the property of the rich 
among the poor; and of interferences in general with 
the property of the rich for the benefit of the poor — 
Of trades' unions. 322 
Chapter VI. — The subject of trades union's continued. 327 
Chapter VII. — Effects of a legislative regulation of the hours 

of labour. 332 

Chapter VIII. — The system of prison labour considered. 335 

Chapter IX. — Of absenteeism. 339 

Chapter X. — Of pauperism. 343 

Chapter XI. — The subject of pauperism continued 349 

Chapter XII.— Of taxation. 356 

Chapter XIII. — The subject of taxation continued. 360 

Chapter XIV. — The same subject continuid. 365 

Chapter XV. — The same subject continued. 368 

Chapter XVI. — The same subject continued. 374 

Chapter XVII. — The same subject continued. 378 

Chapter XVIII. — The same subject continued. 383 

Chapter XIX. — The general principles of taxation. 389 

Chapter XX Of a national .debt. 396 

Conclusion. 402 

Addenda. 409 



THE 
PRINCIPLES 

OP 

POLITICAL ECONOMY. 



BOOK FIRST. 

DEFINITIONS OF TERMS ; AND THE THEORY OF VALUE. 



CHAPTER I. 

DEFINITIONS OF UTILITY AND WEALTH OBJECT OF POLITICAL 

ECONOMY. 

If we look around us, we shall perceive that society is 
SO constituted, that, while only a small portion of mankind 
are placed by Providence in circumstances of such afflu- 
ence as to render them disinclined to make any exertions, 
whether bodily or mental, to enlarge their means of enjoy- 
ment, most persons are engaged in producing, either what is 
to be directly appropriated to satisfy their own desires, or, 
more frequently, what is destined, by being exchanged for 
the products of the labour of others, to minister to the enjoy- 
ment of their fellow-men. In other words, most men are 
producers of utility, in the sense in which this word is un- 
derstood in political economy. For, leaving to the moralist 

3 



11 TIIE PRINCIPLES OF 

tlic decision of the question whether many objects of man's 
pursuit may not in reality be injurious to him, and whether 
he be not often making a sacrifice of higher, but future, 
gratification, or even sometimes subjecting himself to future 
sufTering, that he may administer to himself pcrhajis a small 
amount only of present enjoyment, the political economist 
regards every thing as useful which is capable of satisfying, 
in any degree whatever, any of man's actual wants and 
desires. Thus spirituous liquors arc said to be possessed of 
utility, because they are of a nature to be objects of men's 
desire ; which desire they evince, and afTord a measure of, 
by the sacrifices they are willing to make in order to obtain 
them; and this utility is ascribed to those articles, notwith- 
standing that their use may, in most cases, be justly con- 
demned, and the philanthropist, and the christian, may feel it 
a duty to make every proper exertion to repress the incon- 
veniences, or mischiefs, they occasion. 

But I wish not to be misunderstood. I do not mean 
to insinuate, or to admit, that the poUtical economist, because 
he employs the word utility in reference to man as he is, 
and not as he ought to be, and because the immediate object 
he has in view is not the moral improvement of the species, 
adopts a low standard of morals, or is indifferent to such 
improvement. As well might the votary of any one de- 
partment of science be fairly chargeable with necessarily 
undervaluing, and taking no interest in the progress of, any 
other ; and the pursuits of the astronomer or chemist be 
condemned as vicious in their tendency, because? in observing 
the phenomena, and investigating the laws, of material nature, 
they take no cognizance of the categories of right and 
wrong. So far indeed, I may remark, is the science of 
political economy from leading to conclusions adverse to the 
bests interests of mankind, and so far is it from even turning 
the attention of individuals, or of governments, entirely from 
moral to physical considerations, and teaching them to 



POLITICAL ECONOMY. 15 

advance the happiness of society by measures wholly 
unconnected with morality, that I hope to make it appear to 
the conviction of my readers, as a legitimate deduction from 
the principles of the science, that there is no more efficient 
method of promoting the ■physical well-being of a people than 
to diffuse among them, as extensively as possible, the blessings 
of religion, of morals, and of education. It may likewise be 
added, that no branch of human knowledge exhibits to us 
more beautiful illustrations of the consistency of all truth, and 
of that unity of design which pervades the various provinces 
of creation. 

No person, after having become acquainted with the 
elements of our subject, will fail to perceive the desirableness, 
if not the necessity, of having some word to designate the 
idea intended to be conveyed by the term utility, as I have 
defined it ; and if any inconveniences should result from the 
same term being occasionally employed in another accepta- 
tion, this will only be one of many instances of a similar 
kind, which are continually occurring out of the domain of 
the exact sciences, and which require from the student, as an 
essential condition to the acquisition of real knowledge, a 
certain perspicacity in readily perceiving the different shades 
of meaning of which the same forms of language admit. 
Whenever also an idea is considered as of sufficient importance 
to require it to be designated by a single term, almost the 
only practicable method of proceeding, in fixing upon the 
proper word for the purpose intended, is to select such an 
one as is already employed to denote some idea bearing an 
analogy to that which is to be expressed ; for to coin an 
entirely new word may be regarded as wholly out of the 
question. The closer, too, the analogy, the better, as less 
violence is then done to existing usage. Now in the instance 
under consideration, the term utility is certainly employed very 
much in accordance with the meaning attached to it in com- 
mon language. We speak of a bad use of an object, as well 



IG THE PRINCIPLES OF 

as of a good use of it ; and we speak of the utility of 
weapons, both of oflfence and defence, although, if men were 
prevented, by the non-existence of those of the former 
description, from injuring one another, a considerable 
addition would be implied to. the sum of human happiness. 
It seems to me, then, that it cannot reasonably be denied 
that the political economists arc fully justified in the use they 
make of the term utility ; while it may be allowed, that they 
are also called upon to be cautious how they confound this use 
of it with its more dignified acceptation, when it refers, not 
to the gratification alone of his present desires, but to man's 
happiness in reference to the whole of his future career. 

Of the various objects which arc possessed of utility, there 
are a few distinguished from the rest, by one of these two 
pecuUarities ; that they are either not susceptible of being 
appropriated, — or are supplied to us gratuitously in such 
abundance by the liberality of nature, that no one is willing 
to bestow his labour, or what amounts to the same thing, the 
products of his labour, for the purpose of procuring them. 
The air we breathe, the light and heat of the sun, and, very 
generally, the water we drink, are examples of this class. 
All other objects having utility, besides these, are compre- 
hended under the general denomination of wealth. 

Since the very small number of things useful which do not 
constitute any portion of wealth are, from their very nature, 
never the products of human labour, to produce and to 
consume wealth are entirely synonymous with the production 
and consumption of utility. 

And the province of political economy may now be stated 
to be, to determine the laws which regulate the production, 
distribution, and consumption, of wealth ; with the practical 
object in view of ascertaining the course to be pursued, or 
avoided, by individuals, and by governments, in the disposal 
of the wealth under their control, so as to promote, in as 
great a degree as possible, the happiness of mankind. 



POLITICAL ECONOMY. 17 



CHAPTER II. 

RELATION OF UTILITY TO WEALTH ILLUSTRATED DEFINITIONS OF 

LABOUR, VALUE, &C. 

From the definitions given in the preceding chapter, it 
follows that utility and wealth are not indicative of two 
independent classes of things, but that the one class 
is comprehensive of the other. All wealth is useful. On the 
other hand, whatever is useful is not necessarily a portion of 
wealth. 

That which is incapable of being appropriated, or is 
supplied to us without limit, can have no claim to be styled 
wealth, however great the degree of its utility may be. 
Hence a case may be supposed seemingly paradoxical. Let 
the supply of a certain article of wealth, bread for example, 
be indefinitely augmented. Like atmospheric air, it will 
constitute no portion of wealth. By increasing the wealth 
of the community then, — ^we have diminished it. This seems 
certainly much hke a contradiction in terms. Yet the 
difficulty is of very easy explanation. In the two cases, 
before and after the indefinite augmentation of the stock of 
bread, this article has merely a different place in our classifi- 
cation. In the former case, it is classed under the head of 
wealth ; in the latter, it is ranked with the few useful objects 
which have been excluded from our definition of that term. 

If we now make a contrary supposition, such as that 
water has become scarce in a beseiged town, where it was 
before so readily and abundantly procurable as to be had 
gratuitously, the consequence will plainly be that it must 
henceforth be regarded as wealth ; and the enemy may, 
therefore, by simply cutting off the supply of water, have 
increased the wealth of those whom he has been making 



18 



THE rniNCIPLES OF 



every exertion to distress. Here likewise, it must be hardly 
necessary to remark, the seeming contradiction arises from 
the removal of the article in question from one of our classes 
to the other. And when this is distinctly perceived by the 
reader, any suppositions of the kind which may be made will 
form no objection with hiin to the propriety of our defini- 
tions. 

Again, according to our definition of wealth, it will be 
proper to say of a man who has only a sixpence in the world, 
that he is possessed of wealth. The expression may perhaps, 
to some cars, sound not a little singular ; and it will be because 
we frequently employ the word w^ealth in a relative acceptation, 
as implying a more than usual amount of the various objects 
which I have stated it to comprehend. This, however, ouf^ht 
not for a moment to cast any doubt on the propriety of the 
definition of it above given. There are two points to be 
considered in the business of defining. The one has reference 
to our classifications or arrangements : the other to the 
name by which a class of ideas or objects is to be designated, 
after it is once formed. The former is generally the more 
important of the two ; although the latter is very far from 
being unimportant. We must first examine whether a certain 
number of objects possess common properties which are 
fitted to render them interesting as a class, in their relations 
to science or the ordinary purposes of life, so as to require to 
be frequently spoken of together ; and this point being deter- 
mined in the aflirmative, nothing remains, as has been already 
mentioned, than to apply, to designate the class, that word 
which has been hitherto used in an acceptation the most 
analogous. In the instance under consideratLon, there can 
be no question of the importance as a class of the objects I 
have denominated wealth : the only dispute must be as to 
its name, respecting which I shall say more as I advance in 
my subject. At present, I shall merely observe that the 
definition of wealth which I have adopted can be shewn to be 



POLITICAL ECONOMY. 19 

improper in only one or other of two ways ; first, by pointing 
out some other word whose ordinary meaning is more 
analogous than is that of wealth to what this is intended to 
denote; or, secondly, by showing that, however desirable it 
may be to bestow some name upon the class of objects which 
I call wealth, the word wealth should, nevertheless, be reserved 
to designate another class of objects, still more analogous in 
its nature to what that word signifies in ordinary usage. He 
who is unprepared to do either of these has, as yet, no right 
to object to the use I make of the word ; even though it should 
partake occasionally of that ambiguity which is so frequently 
the result of the poverty of language. 

When, however, in a certain context, the word wealth 
has been so exclusively used in a relative sense as to render 
it singular to apply it absolutely, and this appUcation of it 
can be readily avoided, it seems to me that it would be well 
to adhere to the established usage in the case. The phrase, a 
man of wealth, is an instance of this sort. But where usage is 
not so decided as here, it would, perhaps, be better to avoid 
the ambiguous expression altogether, if it can be done without 
awkwardness. 

The adjective wealthy is always employed in a relative 
acceptation. 

By the wealth of a community or nation, is meant all the 
wealth which is possessed by the persons composing it, either 
in their individual or corporate capacities. 

I have already had occasion to use the word labour ; and, 
in doing so, it was scarcely possible for my meaning to have 
been misunderstood. Still it may be as well for me to define 
it with as much precision as I can, with a view to avoid all 
future misunderstanding. Labour then, — it is of human 
labour alone of which I speak, — is exertion of body or mind, 
and exertion of a painful or at least disagreeable nature, 
which, of course, one only consents to make with the pros- 
pect of receiving, sooner or latter, an adequate compensation. 



20 THE PRINCIPLES OF 

There is, consequently, much muscular action, and voluntary 
muscular action too, that is not labour. It would be unplea- 
sant for us not to exert our bodily or muscular powers in a 
certain degree. Indeed the pain of absolute and continued 
repose would be intolerable. So likewise with respect to the 
mind. All thought is not intellectual labour : only that 
thought is laborious which implies continued study. 

If labour be thus defined, we may conceive of the 
occasional existence of wealth without its having been produced 
by labour. Of this nature is the game obtained in the 
exercise of the pleasures of the chase, the fruit that is plucked 
by the traveller from a bush growing wild by the way side, or 
a precious stone unexpectedly picked up by him who is engaged 
in exploring the solitary places of the earth, in search of 
objects of a different description. Wealth of this kind bears, 
however, a very inconsiderable proportion to that which 
labour produces. The errour would therefore have been an 
insignificant one, at least practically speaking, had wealth been 
defined to consist of " the products of labour ;" or, to express 
myself in equivalent terms, when we say that those products 
constitute all that we mean by wealth, we shall be asserting 
what is very nearly coincident with the definition of it already 
adopted, — so nearly coincident with it as to justify me, when 
I hereafter speak of wealth, in regarding it generally as 
identical with the products of labour. 

Although I have comprehended the utility which is the 
product of intellectual, equally with that which is the product 
of bodily labour, under the denomination of wealth, it will be 
perceived that I exclude the labour by which wealth is pro- 
duced from being thus denominated. But it may be said that 
men are ever to be found who are willinsr to exchance what 
they have procured by means of their own labour, and, in 
general, a portion of what they possess, for the labour of others, 
and that, on this account, labour ought itself to find a place 
in the inventory of wealth. Not so, however ; because the 



POLITICAL ECONOMY. 21 

only reason why labour has any exchangeable value is its pro- 
ductiveness. When wages are paid to the labourer, what is in 
reality purchased are the services rendered by him, or, in other 
words, the products of his labour. So too, where the 
institution of slavery exists, the price of the slave must be 
viewed as a payment in part for what his labour is expected 
to produce ; his maintenance constituting the remaining part 
of that payment. To class labour, therefore, with the products 
of labour, under the same name, would not only be to confound 
together cause and^effect, but would also be estimating the latter 
twice. It is true that no practical errour would result from 
thus in every case doubling the amount of existing wealth, 
because the same proportion would still continue between the 
wealth of one country and that of another, as well as between 
the wealth of a country at any one period of time and its 
wealth at any other period. But notwithstanding this, the 
advantages of not denominating labour wealth, and of applying 
this term only to the products of labour, will, I think, be found 
to be far from inconsiderable, in reference both to the precision 
of our classifications, and the simplicity of our language, in 
political economy. 

Every species of wealth is occasionally exchanged by its 
owner for other portions of it, the possession of which is 
preferred by him at the time of making the exchange ; and 
what is ordinarily given in exchange for any product, at a 
given time and place, or in the same market, is called its 
exchangeable value. Thus if three hats were ordinarily 
exchanged for a coat, it would be equally proper to say, that 
the exchangeable /alue of a coat was three hats, and that the 
exchangeable value of a hat was the third part of a coat. The 
same of any other portions of wealth, whether material or 
immaterial And so too of labour, although labour be not 
included, excepting metaphorically, under the designation of 
wealth. 

Value has sometimes been distinguished into exchangeable 

4 



22 THE PRINCIPLES OF 

value or value in exchange, and value in use. But as value 
in use is altogether synonymous with utility, the employment 
of it may be dispensed with. When I speak of value, I shall, 
accordingly, always mean exchangeable value. 

Whatever is oflered in the market for any thing else is 
denominated a commodity. Every species of wealth is, there- 
fore, a commodity. And labour is one also. 

From the definitions of the terms, we may infer that the 
exchangeable value of any commodity may be expressed in as 
many diflerent forms of speech as there are other commodities 
for which it is ordinarily exchanged. As all wealth is, how- 
ever, most frequently exchanged for money, it becomes 
desirable to have some word to designate the exchangeable 
value of a commodity when estimated in money ; and this is 
what is meant by the term price. 

It must be obvious that wealth may be defined, in perfect 
consistency with the definition of it originally given, to consist 
of every thing, material or immaterial, having exchangeable 
value; with the exception alone, as in the case of that definition, 
of human labour, when this is understood strictly as applying to 
labour itself, and not to the services or products of labour. 
And it may perhaps appear to some of my readers that 
the last mentioned definition would be the simpler, and 
therefore to be preferred, of the two. For the possession of 
utility, the capacity of appropriation, and the existence of a 
commodity in limited quantity, it substitutes tho single condi- 
tion of having exchangeable value. I have, nevertheless, 
based the present treatise on the former definition, as 
the more philosophical one ; since the only reason why an 
object has exchangeable value, is because of its being pos- 
sessed of utility, because it can be appropriated, and because 
its supply is not unlimited. 



POLITICAL ECONOMY. 



CHAPTER III. 



23 



NATURE OF MONEY — THE PRECIOUS METALS CONSTITUTE THE 
MONEY OF THE WORLD. 

Money is that commodity which is most frequently 
exchanged for every other. 

I might, with perhaps sufficient propriety, content myself, 
for the present, with this very general statement of the nature 
of money. But as many of the false theories that prevail 
concerning it are founded on misapprehensions of its true 
nature, it may not be altogether inexpedient to say something 
more, at once, on the subject. 

The attention of my readers may be called to the fact, that 
the precious metals — gold and silver — constitute the money 
of the world ; although in peculiar states of society, and in 
certain secluded districts, a variety of other commodities may 
have been employed as the medium of exchange ; for example, 
cattle among nations of shepherds, certain ornamental shells 
among some very rude tribes, salt in Abyssinia, and iron 
among the Lacedaemonians of the age of Lycurgus. In 
caUing gold and silver the money of the world, it is possible 
that I may seem to have overlooked the copper money, and 
the paper money, in circulation. The former, however, is 
used only for purchases of small value ; and the whole amount 
of it is but an inconsiderable portion of the circulating 
medium. It may be observed with respect to the latter, that, 
in most cases, the reason of its constituting a portion of that 
medium is, that it is the record, and the evidence, of an obli- 
gation to pay on demand, or at a future day, a certain value 
estimated in the precious metals. It is also worthy of remark, 
that the payments made, or moneys transmitted, from one 
country to another, consist almost exclusively of these metals. 



24 THE PRINCIPLES OF 

Not only would the quantity of copper money in circulation 
be wholly inadequate for such a purpose, but the expense of 
its transportation would put this out of the question ; and as 
to paper money, it maintains, generally speaking, its full 
credit, and therefore value, only in the country where it is 
issued, and where it is convertible into specie, which will, of 
course, be sent abroad in preference to it. 

And it may not be here out of place for me to answer the 
inquiry, which must naturally present itself, how it has hap- 
pened, that gold and silver have obtained a preference over all 
other commodities, as the general medium of exchange. This 
will be very readily understood, if we first look at the inconveni- 
ences to which society, as it is at present constituted, would 
be subjected, were there no circulating medium, — and at the 
manner in which men would naturally proceed in order to 
supply that deficiency. Take the case of the baker, and 
suppose him to be desirous of procuring butcher's meat. He 
goes, accordingly, with his loaves, to the butcher, who may 
very possibly already be sufficiently supplied with bread ; and 
he may therefore be obliged to go to another, and another, 
before he is able to accomphsh his object. So likewise may 
the case be in reference to other commodities, and other 
tradesmen. Every individual will, however, gradually learn 
of what articles the persons with whom he deals are most 
fi'equently in need, and will be desirous to have a supply of 
them in his own possession, to facilitate by this means the 
making of his purchases. Instead of exchanging directly the 
products of his industry for what he intends to consume, he 
will procure with a portion of them, in the first instance, what 
may thus serve him as a medium of exchange. In this manner 
too, we can perceive without difficulty that, where there are 
one or two commodities, whose properties render them better 
fitted than any others to constitute such a medium, they will 
be gradually adopted for that purpose. Now the precious 
metals have properties of the kind adverted to in a very striking 



POLITICAL ECONOMY. 25 

degree. These are, first, their durability : they do not deteri- 
orate in quantity, or quality, by being kept on hand. Secondly, 
they possess a great value in a small bulk, which enables them 
to be kept, and to be transported from place to place, at little 
comparative expense. Thirdly, their exchangeable value, or the 
amount of other commodities v^^hich they can purchase, does 
not vary as rapidly as that of most others (I am now merely 
stating facts, without attempting to account for them). 
Fourthly, they can always be procured in the same degree of 
fineness, or alloyed with exactly the same proportion of baser 
metal ; which, I may remark, is done to make them less soft 
than in their pure state, and consequently less subject to 
wear. Fifthly, they admit of being divided into small por- 
tions, of the same weight as well as fineness ; so that pur- 
chases of all degrees of magnitude may be conveniently made 
with them. Sixthly, that weight and fineness can be certified 
by stamping upon those portions certain marks or figures not 
easily effaceable, or, in, other words, by coining them. The 
more attentively any one will compare the degree in which 
gold and silver possess these properties with that in which 
they belong to all other things, the more will he be satisfied of 
their peculiar adaptation to constitute a medium of exchange. 
The motives which would lead, in the manner that has 
been explained, to the use of the precious metals as a medium 
for exchanging all other commodities, on the hypothesis of 
society being constituted as it is with the exception of the 
non-existence of such a medium, it must be evident, cann6t 
be otherwise than influential in producing a like result where- 
ever, and whensoever, the divisions of labour begin to be 
introduced. We find, accordingly, the fact to have been so 
in the earliest periods of the history of our race ; as is authen- 
tically attested in the Scriptures of the Old Testament. We 
read, for example, in the 13th chapter of Genesis, of Abra- 
ham, that he was " rich in cattle, in silver, and in gold." And 
again, in the 23d chapter of the same book, his purchase is 



20 THE PRINCIPLES OP 

recorded of the field of Machpclah, as a burial place for 
Sarah his wife, for four hundred shekels of silver, current 
money with the merchant. 

From what has now been said concerning money, its true 
nature, as well as the relation which it bears to every other 
portion of wealth, will, I hope, be sufficiently understood, to 
enable the reader to follow my reasonings, untrammeled by 
any preconceived and unfounded notions with respect to it. 
And I shall therefore proceed with the business of classifica- 
tion and definition. 



CHAPTER IV. 

DEFINITIONS OF CAPITAL, OF THE WAGES OF LABOUR, AND OP THE 

ACCUMULATON OF WEALTH IMMATERIAL AS WELL AS MATERIAL 

PRODUCTS THE SUBJECTS OF ACCUMULATION. 

Whatever may be the wealth of any individual, there are 
only two ways in which he can dispose of it, with a view to 
his own advantage. He may appropriate it either to the 
gratification of his present, or of his future wants. In the 
latter case, he is said to save a portion of his wealth. This 
again can be done, first, by retaining it in his possession, 
arid, in the mean time, not applying it to any use ; and 
secondly, by employing it in setting persons to work, who, 
while they consume it, are at the same time engaged in pro- 
ducing new wealth, or, in the language of political econo- 
mists, are engaged in the reproduction of wealth, — in the 
reproduction of it, too, with a profit.* 

* The lending to another of a portion of one's income is not a mode of appro- 
priating it distinct from the two which have been mentioned ; for the wealth so 
disposed of must necessarily be appropriated by the borrower in one or other of 
those two modes. 



POLITICAL ECONOMY. 27 

There is scarcely any thing which, when reserved for 
future consumption in the first of these two methods, does not 
deteriorate, and eventually perish. Where man thus forbears 
the work of destruction, time, or rather the constant action 
of natural causes, takes it up, and sooner or later brings the 
most durable things to decay. Gold and silver are, for this 
reason, almost the only commodities any one ever thinks of 
keeping in his possession for more than a short period of 
time unemployed. And as almost the only motive for doing 
this (which every one knows is denominated hoarding^ is an 
impression of the insecurity of property, very few people will 
have recourse to it in a civilised community, where the arbi- 
trary will and rapacity of the governors, and the Hcense of 
evil-disposed individuals, are effectually held in check by the 
dominion of the laws. To save will therefore, in the great 
majority of instances, be identical with the appropriation of 
wealth to the purpose of again producing wealth. When it is 
so appropriated, it is styled capital; which is hence a class 
of objects separated from, and comprehended in, the more 
general class of wealth ; and just as, while every portion of 
wealth is possessed of utility, every thing useful does not con- 
stitute a portion of wealth, so all capital is necessarily wealth, 
while much of wealth has no claim to be denominated 
capital. 

Before proceeding any farther, the reader should endeavour 
to render himself famihar with the above statement respecting 
the nature of what is saved and appropriated as capital. He 
should continually bear in mind that it is destined to be con- 
sumed equally with the wealth which is not saved. The for- 
mer of these, too, may be, and very frequently is, more rapidly 
consumed than the latter. In illustration of this, compare the 
food and clothing of the labourer, with the mansion, and 
the furniture of various kinds, ornamental as well as useful, 
with which it has been provided, of his employer. Indeed, 
the being saved or not being saved, the being employed as 



28 THE PRINCIPLES OP 

capital or not being employed as capital, has no relation 
whatever to slowness or rapidity of consumption, but simply 
to the circumstance of the wealth in question being, or not 
being, appropriated to the reproduction of wealth. 

The only consistent meaning which the political economist 
can attach to the accumulation of wealth is its increase 
through the instrumentality of increased savings. Wealth 
will, consequently, accumulate in proportion to the rate at 
which, at any particular time, capital is accumulating. Here, 
in order to guard against misapprehension, I may remark 
that, in different countries, and at different periods in the same 
country, equal increments of wealth may not correspond with 
equal increments of capital ; for capital, like labour, is not 
always, and everywhere, in the same degree productive. 

From what precedes, the reader, I hope, will distinctly 
perceive that immaterial products, in the same manner pre- 
cisely as material products, can be saved and made to consti- 
tute a portion of capital ; and that they therefore admit of 
accumulation in the proper sense of this term. When I pay 
wages to any workman whom I employ, what I really pay 
him, that is his real wages, will be rightly estimated by the 
amount of the various necessaries and luxuries of life which 
I shall have enabled him to obtain. I might have made a 
very different disposition of those necessaries and luxuries : 
and they may be truly said to have constituted a portion of 
my property or wealth. The circumstance that the specific 
commodities disposed of by me were never in my immediate 
possession is of no moment in this respect. It suffices that 
they were under my control ; the evidence of which is to be 
found in the power I have exerted in causing their transfer- 
ence from one individual to another. Now the real wages of 
the labourer, as the term has just been explained, are in no 
case confined exclusively to material products. Even in the 
most degraded communities, there is scarcely any one of the 
Jabouring poor, who does not consume occasionally what is 



POLITICAL ECONOMY. 29 

immaterial. Of this nature, obviously, is the protection which 
he receives from the government and laws under which he 
lives, and the advice given by a physician to his family in 
periods of sickness. Other illustrations, too, will readily occur 
to the reader. In so far as he pays for any such immaterial 
products with the money which I have given him, will they 
constitute a portion of his wages, that is a portion of my sav- 
ings or capital. And as capital, and therefore wealth, are 
always accumulated by means of augmented savings, it is 
manifest that immaterial are, equally with material products, 
the subjects of accumulation. 

But it may be said that the impossibihty of immaterial pro- 
ducts being accumulated is the necessary consequence of their 
being consumed in the act of production ; because this circum- 
stance puts forever out of the question the existence of any 
excess of production over consumption. 

To this objection I reply, that the amount of the wealth 
which exists at any time unconsumed, — and this is unques- 
tionably the measure of the excess of previous production 
over consumption, — has no fixed relation to the command 
which the community possesses over the necessaries and lux- 
uries of life, or, in other words, to the only purpose to which 
the objectors themselves will admit the accumulation of wealth 
to be subservient. This is manifest in respect to all such 
necessaries or luxuries as are of an immaterial nature. But 
the proposition can be shewn to be equally true when we 
confine our view to material wealth. Just in proportion as 
any object is more rapidly consumed, will it yield a greater 
gratification to its possessor in a given portion of time, — all 
other circumstances, of course, remaining the same. If we 
suppose the period of its consumption to be diminished one- 
half, the gratification derived from it in a given time must, 
therefore, be doubled. The whole amount of gratification, 
that is of necessaries or luxuries enjoyed, will consequently 
continue unaltered. So likewise if the diminution of the 

5 



so THE PRINCIPLES OF 

period of consumption be in any other ratio. Any diminution 
of the kind, however, necessarily implies that the excess of 
previous production over consumption has become less than 
it was before. Hence the existence of such excess, in any 
degree, has no essential connexion with human happiness, 
and ought not to constitute a criterion of the existence 
of wealth. Besides, whoever adopts this criterion cannot, in 
my opinion, without inconsistency avoid regarding the dura- 
bility of an object, irrespective of any other consideration, as 
a measure of the wealth which is embodied in it, or with 
which it is identical ; so that, for example, a certain quantity 
of hardware, instead of constituting only an equal portion 
of wealth with corn of the same exchangeable value, ought 
to be estimated, merely because it is in its nature more dura- 
ble, as of greater amount than the latter, — an estimate which 
few or none will hesitate to reject at once, as an absurdity. 

I have said that by the accumulation of wealth is meant its 
increase through the instrumentality of increased savings, or 
of an increase in the capital of the community. This account 
of the nature of accumulation implies, it may not be super- 
fluous to add here, although perhaps sufficiently obvious 
from what has been above-mentioned, that, when wealth is 
accumulated, a greater amount of it is consumed, as well as 
produced, in a given time ; for if such were not the case, 
there would be no augmentation whatever of the advantages 
derived from wealth ; and its augmented production would 
be a piece of pure folly. 

That the amount of accumulated wealth is not to be 
measured by the excess of previous production over consump- 
tion, but by the amount of w'ealth which is produced and 
consumed in a given time, — and that immaterial products are 
susceptible of accumulation in the very same manner as 
material ones, — are propositions which I have taken some 
pains to establish, and to impress upon the reader's mind. 
And I have done so, both on account of their novelty, and of 



POLITICAL ECONOMY. 31 

their importance, as I think, to a comprehensive and fully- 
satisfactory view of the science of political economy. One 
or two writers may have had occasionally a glimpse of the 
latter ; yet none, so far as I know, even of those who have 
apphed the term wealth to immaterial as well as to mate- 
rial products, have sufficiently realised the possibility of 
immaterial products being accumulated, to induce them to 
embrace these under the denomination of capital ; without 
doing which, the extension of the definition of wealth will be 
found to be merely a barren generality. The former of the 
two propositions I believe to be so entirely new, that it would 
be impracticable to point out a passage in the writings of any 
political economist, indicative of the remotest suspicion on his 
part of its truth. These propositions are intimately related to 
each other ; since, as must be evident, if the excess of pre- 
vious production over consumption is a correct measure of 
the wealth accumulated, to predicate accumulation in respect 
to that which is consumed in the very act of being produced, 
— that is of immaterial products, — would be a direct contra- 
diction. In what degree, if in any, the possibility of such 
accumulation is important, the reader will be able to decide 
for himself in the sequel.* 

* The possibility of accumulating immaterial products, and of their constituting 
a portion of capital, seem to me to be points of so much importance to a compre- 
hensive and adequate view of the science of political economy, tliat I may be 
permitted in this note to restate the argument of the text in a concise form. 

No other test of the increase of wealth can possibly exist, whether it be mate- 
rial or immaterial, than that a greater quantity of it is produced and consumed 
in a given time than before. But since nothing more is intended by the accumu- 
lation o{ •wealth than the increase of it, it will manifestly be proper to speak of the 
accumulation of immaterial products. 

Again, what is saved and appropriated as capital is not of necessity consumed 
slower than any otlier portion of wealth ; it is merely consumed by a different 
class of persons. We have here tlierefore no reason why capital should not be 
composed, like that portion of wealth which is not capital, in part of tlie products 
which are immaterial, as well as of those which are material. And as, in almost 
every instance, the real wages of the labourer, — whicli wages, when advanced to 



32 TIIK TBINCIPLES OF 



CHAPTER V. 

CONSTITUENT ELEMENTS OF CAPITAL PRODUCTIVE AND UNPRO- 
DUCTIVE CONSUMPTION — DISTINCTION OF CAPITAL INTO FIXED 
AND CIRCULATING. 

Capital consists, frsU of the wages of labour.* Secondly, 
of those instruments and constructions of all kinds which 
assist the labourer in the production of v*?ealth. Thirdly, of 
the materials, in different stages of preparation, on which his 
labour is exerted. Fourthly, of that amount of the finished 
commodity which it may be thought expedient by the owner 
of capital, or capitalist, as he is called, to keep on hand 
before selling it. And lastly, of the money appropriated to 
the circulation of the various other constituent portions of 
capital. 

The wages of labour might seem, at first view, to comprise 
a part at least of the money mentioned under the last head, on 

him by his emploj^er, arc a portion of the latter's capital, — consist, in a certain 
degree, of immaterial products, it will follow that immaterial products may be 
made to constitute a portion of capital. 

Perhaps, too, the analogy which has been pointed out between material 
and immaterial products will be more clearly apprehended by tlie reader, if he 
analyse the mode in which the former of these administers to tlie gratification of 
our desires, and compare it with that in which we derive gratification from the 
latter. He will not be surprised at the closeness of the analogy in question, 
when he perceives, as he will not fail to perceive, that, in both cases alike, the 
uUimale product is sunply — agreeable sensations. The entire utility of the house 
in wliich we dwell, for example, arises from its adaptation to produce a series of 
such sensations in our minds, just as the products of the painter or the musi- 
cian arc adapted to do. 

* If any portion of the labourer's wages be not advanced to him by his 
employer, but be received by him only after tlie process of production is completed, 
he will then receive, besides his wages, profits upon them for the time their pay- 
ment has been postponed ; in other words, he may liimself be regarded as a capital- 
ist, whose capital has been invested togeUier with that of his employer. 



POLITICAL ECONOMY. 33 

account of those wages being ordinarily paid in money. This 
is, however, not the case. We must be careful not to con- 
found the real wages of the labourer with his money wages. 
The latter, as has been before stated, are only instrumental 
in procuring the former. The labourer, who receives money 
for his services, exchanges it again for the necessaries and 
comforts of hfe, both of a material and immaterial nature, 
which he is enabled by means of it to obtain ; and the money 
is only transitorily in his possession. 

With respect to the last of the subdivisions of capital which 
I have mentioned, it may very possibly be objected, that it is 
not of a sufficiently distinctive character ; because the very 
same money that is employed to circulate the constituent 
portions of capital is also the medium for exchanging every 
thing else. This is a circumstance, nevertheless, of no impor- 
tance ; for it is undeniable that a certain proportion of the 
exchanges made, and, of course, of the money employed in 
making them, has a relation to capital ; and it is this propor- 
tion, or amount, of money, which is meant to be classed 
under that denomination. It may also, perhaps, seem singular 
to some of my readers, that only a portion of the circulating 
medium should be styled capital. The singularity arises from 
the fact that large sums of money are commonly so desig- 
nated, in consequence of this being the form in which the 
capitalist usually realises his property before he makes his 
investments, and from the capacity, and consequent liability, 
of all money to be employed vrith a view to reproduction. 
But in as much as the progress of an individual or nation in 
wealth is dependent, not on the amount of his property that 
is Hable to be employed as capital, but on what is actually so 
employed, we want a term for the latter, and not for the 
former. Now capital is the term that has been selected for 
this purpose ; and there can be no reasonable objection to it, 
until a better shall be offered as a substitute. 

It might, possibly, be made a question whether " that 



84 



THE PBINCIPLE8 OF 



amount of the finished commodity which it may be expedient 
for tlic capitalist to keep on hand before sclhng it" is with 
propriety styled capital. Tliat it is so styled in the actual 
business of life, must be notorious to every one. Such, for 
instance, is, to a very considerable extent, the capital of the 
merchant. In every case, too, where we speak of the profits 
of capital, we mean, not only the profits on the wealth which 
is alone apparently employed in production, but likewise on 
all that portion of it which is thus kept on hand. And as both 
these portions do, in reality, always yield profits in proportion 
to the amount of each, may they not be said to be equally 
productive, and to be equally entitled to have the term capital 
applied to them ? Farther light will, however, be shed upon 
this point, when I shall have treated of the determination of 
the prices of commodities by the cost of producing them. 

Whatever is consumed as capital is said to he productively 
consumed; and what is otherwise consumed is said to be 
unjjroductivelij consumed. Thus the wages of the labourers 
whom I employ are a part of my productive consumption. 
On the other hand, my own food and clothing belong to my 
unproductive consumption. 

A labourer may dispose of his wages, just as his employer 
may do of his wealth, in two ditferent ways. He may make 
an immediate appropriation of them for the supply of his 
wants, or he may save and employ them as capital : in other 
words, he may consume them either unproductively or pro- 
ductively. Hence it follows, that the same wealth which 
constitutes the productive consumption of the employer of 
labour, may constitute also the productive or unproductive 
consumption of the labourer. 

Capital is either fixed or circulating. Fixed and circulating 
are here relative terms ; by fixed capital being meant that 
capital which is less rapidly, and by circulating capital that 
which is more rapidly consumed. When we have reference 
to the capital employed in the same branch of industry, it is 



POLITICAL F-CONOMY. 35 

customary to designate those specific portions of it which are 
wholly consumed in the act of production as circulating, 
and those portions which only suffer loear and tear as fixed 
capital. The fixed capital in one employment may, conse- 
quently, be consumed more rapidly than the circulating is in 
another. 



CHAPTER VI. 

DISTINCTION BETWEEN THE LABOUR WHICH IS PRODUCTIVE AND 

THAT WHICH IS UNPRODUCTIVE WHY IT MAY BE DISPENSED 

WITH. 

The writers on political economy who restrict wealth to 
matter are very naturally led to lay much stress on the dis- 
tinction of labour, as productive and unproductive. According 
to them, the labour applied to the production of material 
commodities is alone productive ; that which is applied to the 
production of immaterial commodities being regarded as 
unproductive. All persons engaged in agriculture, manufac- 
tures, or commerce, are therefore productive labourers ; and 
magistrates, lawyers, physicians, teachers, poets, philosophers, 
clergymen, — as also players, opera-dancers, jugglers, and 
mountebanks, — are unproductive labourers. 

It is not denied that an unproductive may often have a far 
greater influence in advancing the wealth of a country than a 
productive labourer; that the labours of a Watt or a Fulton, 
for instance, were in this respect equivalent to those of many 
thousands who have owed to them the very existence of their 
several occupations. Notwithstanding this, however, the 
consistency of the distinction in question is maintained on the 
ground of the one class of labourers being engaged in 



36 THE PRINCIPLKS OP 

directly producing wealth, while the other class are only 
indirectly instrunncntal in its production, — a ground which is, 
without doubt, ))erfectly tenable, if immaterial products be 
excluded from the definition of wealth. 

If now we suppose the relation of capital to wealth to be 
the same as that which I have stated in the preceding pages, 
it will be the productive labourers alone who are employed by 
capital; and, in order to determine whether any individual 
be a productive or unproductive labourer, we need only 
inquire whether he be, or be not, employed by capital. 

But the political economists, on whose views I am now 
remarking, do not invariably regard as capital the wealth 
which is appropriated " to the purpose of again producing 
wealth." When, under any circumstances, the wealth pro- 
duced is altogether unproductively consumed, it is obvious 
that no permanent addition is made to the wealth of the com- 
munity. It follows that if we class the producers of the wealth 
thus consumed with the unproductive labourers, and therefore 
refuse to denominate the wealth by which they are employed 
capital, no errour will ensue in reference to the progress of 
national wealth ; and it is in reference to this progress alone, 
that the distinction under consideration will be asserted by 
any one to be of any the least consequence. Although menial 
servants are in many cases occupied in adding utiUty to 
matter, the writers of whom I am speaking style them unpro- 
ductive. No one who employs them does so with the object 
in view of becoming thereby richer : all that they produce is 
unproductively consumed ; and their wages constitute, on this 
account, no portion of their employer's capital.* 

So long as wealth is restricted in its signification to matter, 

* That no one who employs menial servants does so witli Uie object in view of 
becoming tlicreby richer, is a remark only generally true. A cook, for example, 
in a public hotel, is directly engaged in adding to his employer's wealth. Accord- 
ing, therefore, to those political economists who adopt the distinction now under 
consideration, he must in this case be ranked with the productive labourers. 



POLITICAL ECONOMY. 37 

the distinction which has just been explained, between pro- 
ductive and unproductive labour (to repeat what I have 
already said) will be found to be always perfectly consistent 
with itself; — the numerous instances of apparent inconsis- 
tency that have been charged upon it, by different writers, being 
all of them founded on a misapprehension of the meaning 
attached to it by those who have adopted it. Its expediency 
is, however, a very different question. This depends entirely 
on the manner in which wealth and capital have been previously 
defined. If these terms have been applied exclusively to 
material objects, and if they have been so applied on account 
of the pecuUar importance of such objects in their relation to 
the science of political economy, it will certainly become 
equally important to distinguish carefully between the producers 
of wealth, and all those who are engaged in producing what, 
however useful it may be, is not wealth. On the other hand, 
if wealth and capital are made to comprehend as well imma- 
terial objects as material ones, every species of labour which 
is productive of utility, whether this utility be first, so to 
speak, embodied in matter, or not, will be productive, and 
the distinction in question will be made to disappear altogether. 
There will, at least, be no unproductive labour excepting when 
more labour than is necessary is employed to produce a par- 
ticular commodity, or when more of it is produced than is 
required by the comparative wants of the community. I may 
remark that, when this is the case, while a certain portion of 
the labour employed is unproductive, every labourer will, 
nevertheless, be productive in a certain degree ; for if he be in 
no degree productive, he will scarcely have any claim to the 
designation of a labourer. 

Care must be had not to connect together too closely the 
distinctions of productive and unproductive labour, and of 
productive and unproductive consumption, so as to suppose 
that the rejection of the former will necessarily lead to 
the rejection also of the latter. This, on the contrary, 

6 



38 THK PRINCIPLES OF 

being identical with the distinction between the weahh 
which is appropriated as capital and the wealth which is not 
so appropriated, will have its importance in no wise dimin- 
ished. 

Now if labour of every kind is productive, the labour of 
menial servants is productive. They are therefore employed 
by capital ; or, in other words, their wages constitute a 
portion of their employer's capital. But to express ourselves 
thus is, it may be said, to set at defiance the established usage 
of language. Not more so, however, than those writers do 
who distinguish labour into productive and unproductive. 
The mode in which they contrive to render their use of the 
word capital consistent with ordinary usage has been already 
stated ; and, by refusing to make any distinction, in respect 
to productiveness, between the different kinds of labour, I am 
not at all hindered from proceeding, if I so choose, in the same 
manner. On account of the whole of what menial servants 
produce, whether it be material or immaterial, being con- 
sumed unproductively, their wages may be omitted from 
among the constituent portions of capital, without affecting in 
the least the correctness of our conclusions concerning the 
progress of the capitahst or nation in wealth, or even the 
phraseology in which those conclusions are expressed. The 
reader may therefore if he pleases, understand me, in what is 
to follow, as making this slight modification of my definition 
of capital. 

It may here be mentioned that a practical and moral 
advantage cannot fail to result from getting rid of the distinc- 
tion between the productive and unproductive labourers. 
Mankind, instead of being separated into two classes having 
occupations essentially differing, and liable on this account to 
an interference with each other's interests, will come to be 
regarded as constituting one and the same great family. 
The political economist, by continually associating together 
in his investigations every species of manual or bodily labour 



POLITICAL ECONOMY. 39 

with that of the most refined and exalted intellect, cannot 
fail to dignify the former in his estimation ; while he will, on 
the other hand, contribute most effectually to remove from 
intellectual labour the stigma which is ordinarily implied by 
designating it as unproductive. If he shall succeed in banish- 
ing from the popular language such phrases as "the productive 
classes" and " the unproductive classes," he will have done 
more to prevent the " workmen" of a country from esteeming 
themselves to be the only useful portion of society, than he 
could possibly do by reminding his readers, every time he 
writes the word unproductive, that his object in applying it 
to any individual is not to pronounce him to be unproductive 
of utility, but of material objects having utility,— not to 
pronounce him to be a mere consumer of the products of the 
labour of others, but simply to be not employed by capital, 
although perhaps employed in continually conferring the most 
extensive benefits on his fellow-men. The definitions of 
technical terms, which do not accord with their popular 
acceptation, are very apt to be forgotten even by those who 
have paid some attention to the science to which those terms 
relate ; and hence it is no uncommon thing to see the popular 
acceptation usurp the place of the technical, even in profess- 
edly scientific treatises. 

Here I shall suspend, for the present, my remarks on 
capital and its relations, and shall likewise bring to a close 
the business of mere classification and definition. 



40 THE FRINCiriES OF 



CHAPTER VII. 

INFLUENCE OF SUPPLY AND DEMAND IN DETERMINING THE 
EXCHANGEABLE VALUE OF A COMMODITY. 

I HAVE already mentioned the fact of every species of 
wealth being the subject of frequent exchanges, and that the 
exchangeable value of a commodity might be regarded as a 
criterion of the existence of wealth. One of the topics, 
therefore, which naturally present themselves early for 
inquiry to the political economist is, — what the circumstances 
are that determined the degree of the exchangeable value of 
different commodities, or why the exchangeable value of 
any thing is just what it is, and no other. I proceed to the 
discussion of this topic. 

Of the three conditions on which the existence of exchange- 
able value was stated to depend, the capacity of being 
appropriated is of an absolute and invariable character, whilst 
the other two, viz. the possession of utility, and a limited 
supply, admit of coexisting in all possible degrees ; and the 
relation which these bear to each other, in reference to any 
two commodities, must consequently determine the degree of 
their exchangeable values, when they are compared together. 
Now, other circumstances remaining the same, in proportion 
to the utility of any object will be the desire to obtain it, and 
more of other things will be offered in exchange for it. 
Exchangeable value may, therefore, be regarded as determined, 
in every instance, by the relation which the supply of a com- 
modity has to the demand for it. 

Before, however, attempting to trace the manner in which 
this determination takes place, it is important to render the 
ideas attached to the terms supply and demand as distinct as 
possible, and to clear them of such ambiguities as might lead 
to errour or obscurity in our reasonings. I shall likewise 



POLITICAL ECONOMY. 41 

premise that, since commodities are for the most part 
exchanged for money, the attention of the reader will be 
directed, in the first place, to the laws which regulate their 
prices ; when it wall be easy to infer those which apply to 
every case of exchangeable value. 

By the supply of a commodity is to be understood the 
quantity of it which comes into the possession of the sellers, 
and is offered by them for sale, during a given portion of 
time; and we must carefully distinguish, in the case of 
material commodities, between the supply of a commodity as 
thus defined, and that amount or stock of it which the sellers 
may think it for their advantage to keep on hand, in order to 
attract purchasers to their respective stores or warehouses, — 
by ensuring to them the opportunity of at all times procuring, 
on application, whatever they may stand in need of, or by 
presenting for their selection a larger assortment of goods. 
The stock on hand among the sellers, and which they offer 
for sale, so far from having any direct proportion to the 
supply, is generally less as the latter is augmented, and 
greater as that is diminished ; for it is plain that every seller will 
be more disposed to keep on hand a commodity, according as 
he has a less expectation of being shortly supplied with it, and 
so vice versa ; and nothing is easier than for the sellers to 
augment or diminish the stock on hand, in the one case by 
the raising, and in the other by the lowering, of prices. 

By demand is not meant to be implied simply the desire 
of possessing. To this scarcely any limits can be assigned. 
Every one acquainted with the use of a commodity has 
necessarily the desire to possess it. But the desire to possess 
it, unless accompanied by an offer of money, or something 
else, in exchange for it, can obviously produce no effect 
whatever on its exchangeable value; because such a desire 
can in no way influence the sellers to part with it more or 
less readily. The demand with which we are concerned is 
to be estimated by the number of offers to purchase made in a 



42 THE PRINCIPLK3 OF 

given time, at any given rate : and where more offers are made 
to purchase a commodity at its existing price than before, the 
demand is said to have increased ; while the contrary will 
take place, when the number of similar offers is diminished. 

Let us now examine in succession the different modes in 
which variations in the relation between the supply of, and the 
demand for, commodities can influence their prices. And let 
our examination, in the first instance, have reference to 
material commodities. 

1. The demand for a commodity remaining the same, let 
the supply become more abundant. If then its price were not 
to rise, the stock on the hands of the sellers would accumulate, 
without producing any counterbalancing advantage. It 
would be so much dead and unprofitable capital. To avoid 
such a state of things, and dispose of the additional supply, 
there is no other remedy for the sellers to have recourse to, 
but to lower the price of the commodity. Many of those 
persons who were purchasers before, will now purchase in 
larger quantity ; and some, who were wiUing, rather than 
pay its former price, to dispense altogether with the article 
in question, will now become purchasers. Its price will only 
cease to fall, when the quantity disposed of is just equal to the 
supply. 

2. If we now suppose the supply of a commodity to be 
diminished, while, as under the preceding supposition, the 
demand continues the same, it is clear that the interest of the 
sellers will prompt them to raise its price, until, in conse- 
quence of the corresponding diminution of the amount of sales, 
the quantity disposed of will not exceed, but be just equal to 
the diminished supply. 

3. The supply remaining the same, let the demand be 
increased. Let the persons who before purchased a certain 
article now purchase a greater quantity of it ; and let others 
who before did not purchase it at all now become purchasers. 
We can suppose such an increase of demand to arise, either 



POLITICAL ECONOMY. 43 

from a change in the fashion of the day, or from some new 
use to which the article in question is capable of being 
applied. But whatever the occasion of it may be, the sellers 
will be induced to raise prices ; for by so doing, while they 
make greater profits, they can at the same time dispose of the 
whole supply. 

4. A diminution of demand will, it must be obvious, pro- 
duce effects directly opposite to those resulting from an 
increase of demand. The sellers will lower prices, until the 
purchases made shall be sufficient in amount to take off the 
supply. 

5. The prices of things are affected, not only by actual 
variations in the rates of supply and demand, but likewise by 
every expectation of the occurrence of such variations at a 
future time. An expectation of an extraordinary future 
supply will operate to lower present prices in a two-fold 
manner ; by directly influencing the minds of the sellers, — 
and by its influence on the sellers, through its operation on the 
minds of the buyers. First, the sellers, aware that the 
expected increase of supply, when it shall have actually 
occurred, will have the effect of lowering prices, will be 
anxious to make a greater number of present sales, and to 
diminish the stock they have on hand ; for which reason they 
will at once sell cheaper. But, secondly, the buyers equally 
aware with the sellers of the expected increase of supply, 
will be induced to postpone their purchases to a certain 
extent. In other words, they will make a less present 
demand. And in this way too, it will be apparent from what 
has been said already, the sellers will be led to reduce their 
prices. 

6. An expected diminution of supply must, of course, 
produce the opposite effect. The sellers will be disposed to 
raise prices, that they may reserve a larger stock of goods ; 
and the buyers will make a greater present demand ; which. 



44 THE PRINCIPLES OF 

again, will be an additional inducement to the sellers to sell 
dearer. 

7. An expected increase of demand will be a motive to the 
sellers at once to raise prices, thereby to retain a greater 
stock of goods on hand ; and it will have a tendency to 
multiply the present number of buyers, and, in this way like- 
wise, to raise prices. 

8. An expected diminution of demand will have the 
contrary effect of lowering prices. The sellers will have a 
motive to diminish the stock they have at present on hand ; 
while, in expectation of a fall of prices, the buyers will be 
inclined to postpone their purchases, and will thus, by making a 
less present demand, offer an additional motive to the sellers 
to dispose of their commodities at a lower rate. 

It is scarcely necessary to remark that more than one of 
the causes which have been mentioned, of the variation of the 
prices of commodities, may be operative at the same time ; 
when, of course, the effect actually produced will be compli- 
cated of the effects which they are calculated to produce if 
they act separately ; and it is obviously very possible, that 
the causes in operation to vary prices might so neutralise 
each other's action, as to retain those prices at nearly an 
uniform rate. 

Every expected future change in the rate of the supply or 
demand will have an influence on present prices, so much 
the less in proportion to the remoteness of the expectation. 
The truth of this cannot but be apparent from what has been 
stated. 

The degree, too, of that influence will depend, in some 
measure, on the nature of the commodity, in relation to which 
the increase or diminution of supply or demand is expected. 
For example, if an article be of a perishable nature, an expect- 
ed future diminution of supply or increase of demand, cannot 
be as strong an inducement to the sellers to raise its price, 
and to keep a large quantity of it on hand, as if it were more 



POLITICAL ECONOMY. 45 

durable. An expectation of a diminished supply of oranges, 
three months hence, would produce little or no impression on 
their present prices : the fruiterers must, at all events, sell 
the whole of their stock within a time less than that specified, 
or consent to suffer a total loss by the perishing of the oranges. 
On the other hand, an expected diminution, at the end of the 
three months, in the supply of hardware or corn, which can 
be stored in the mean while without loss, would have a 
marked effect on the price of the article. Again, the willing- 
ness, or power, of any individual to postpone his purchases, 
will depend on the degree in which he stands in need of what 
is proposed to be purchased. If it be to him a necessary of 
life, he must procure it immediately ; but if it be a mere 
luxury, he may contrive to do without it. Now if there exist 
an expectation of an increased supply of, or a diminished 
demand for it at a future day, it has been shewn that its price 
will fall partly in consequence of the diminution of present 
demand; which diminution, being itself the result of the dispo- 
sition of the buyers to postpone purchasing, it follows that, 
according as an article is less an object of necessity, and more 
an object of luxury, its price will be affected by the expectation 
of an extraordinary supply, or of a decrease of demand, at a 
future day. 



46 THE FKINCIPLES or 



CHAPTER VIII. 

THE SAME SUBJECT CONTINUED. 

In prosecuting tlie inquiry into the circumstances, or causes, 
which occasion a variation in the prices of commodities, it has 
been impliedly supposed, that the money for which they are 
exchanged is in no respect whatever subjected to change. But 
money is itself a commodity, and therefore hable to the same 
changes in respect to supply and demand as all others. And 
in comparing it with any other which is supposed to undergo 
no changes of the kind, it must be obvious that we may 
reason concerning its exchangeable value, just as we did con- 
cerning prices. An alteration of the exchangeable value of 
money is, however, identical with an alteration in the price of 
the article with which it is compared. Hence the price of 
commodities will vary, not only on account of a change, 
present or expected, in the rate of their supply or demand, but 
hkewise on account of any similar change in reference to the 
money for which they are bought or sold. 

This last conclusion may be reached by an argument, 
although substantially the same, in a different form. When 
the demand for money increases, every thing else remaining 
unchanged, it is implied that the desire to possess money, 
rather than other things, is greater than before. Less money 
will therefore be offered in exchange for all other commodi- 
ties ; that is, there will be a general fall of prices. The 
contrary effect will be produced, it is plain, by a diminution 
in the demand for money. Any augmentation of the supply 
of money will, of course, be followed by a greater number' of 
purchases, and any diminution of such supply by a less 
number of purchases. In the one of the cases just mentioned, 



POLITICAL ECONOMY. 47 

there will, therefore, be a general fall of prices ; and, in the 
other, a general rise of prices will take place. The prices of 
commodities will consequently vary, as before stated, as well 
on account of any previous alteration in the supply of or 
demand for money, as of such an alteration in respect to the 
commodities themselves. 

The effect, moreover, on prices, of the supply of money, or 
the demand for it, becoming greater or less, is to cause them 
to rise or fall in the same proportion. So long as the neces- 
sities and desires of men remain unaltered, will the money 
actually circulating be appHed to the procuring of the very 
same commodities. If the circulating medium be doubled, 
the price of every thing will be doubled ; and the like in 
whatever other ratio that medium may be supposed to have 
increased ; or in whatever ratio it be supposed to have dimin- 
ished. The exchangeable values of commodities, other than 
money, when these are compared with each other, will hence 
remain unaffected by any supposed alteration in the supply of 
or demand for money ; and we may, therefore, reason cor- 
rectly concerning their exchangeable values universally, by 
assuming the supply of and demand for money to remain 
unaltered. But, when this is the case, it has been shewn that 
the price of every commodity will vary with every alteration 
in the present or expected rates of its supply or demand. We 
are hence entitled to conclude that, when any two commodi- 
ties, other than money, are compared together, — and this 
even when their exchange takes place through the intervention 
of money, — their exchangeable values will depend on the 
degree of the supply and demand of both, in reference to the 
present and likewise to the future. 

Again, since the exchangeable value of money, when 
estimated in reference to any other commodity, is dependent 
entirely on the quantity of money for which this is exchanged, 
so that, when the price of the commodity is reduced in any 
proportion, the exchangeable value of money, thus estimated. 



48 THE PRINCIPLES OF 

will be augmented in the very same proportion, it follows that 
money will have its value in exchange determined precisely 
like that of every other commodity, viz. both by the relation 
existing between supply and demand in respect to itself, and 
in respect to the commodity for which it is exchanged. 

I have now, I hope, explained in an unexceptionable manner, 
and perhaps with more than sufficient fulness, the operation 
of the principles of supply and demand in determining the 
exchangeable values of material commodities. The question 
still remains, — on what principles are the exchangeable values 
of immaterial or intellectual products determined ? And also 
on what principles is that of labour, or are the wages of 
labour determined 1 In reference to immaterial products, I 
may remark that there is no part of the foregoing reasoning 
which is not quite as applicable to them as to those that are 
material, excepting the circumstance of there being nothing 
in relation to the former analogous to the " stock on hand'* 
among the sellers, of which mention has been made when 
treating of the exchangeable values of the latter. But my 
reasoning, it will be recollected, did not in any way assume 
that stock to be of a particular magnitude ; and the conclu- 
sions to which I was led must, therefore, be equally true, 
however small that stock may be supposed to be. And it 
would be quite logical to infer their truth even in the case of 
that stock, to use the language of mathematicians, being 
diminished indefinitely ; which is the case with all immaterial 
commodities. They are consumed in the very act of being 
produced, and cannot, it is manifest, remain even for an instant 
«* on hand." 

But since they are not embodied in any intervening object, 
they may, very clearly, be resolved into the compensation or 
wages of intellectual labour ; and the investigation of the 
theory of exchangeable value may, independently of what has 
just been stated, be completed by pointing out the causes which 
regulate wages. These too, it can easily be shewn, are 



POLITICAL ECONOMY. 49 

determined, at any particular time, on the principles of supply 
and demand. 

For this purpose, let us suppose in ihe first place, while the 
demand for labour remains the same, the supply of it to 
increase. The same amount of what is appropriated by the 
capitalists for wages will now have to be divided among a 
greater number of persons. The wages of each must, there- 
fore, be diminished. Secondly, it is obvious that the contrary 
effect will follow a diminution of the supply of labour. 
Thirdly, let the amount of labour applied continue the same, 
and the demand for labour increase. Such a demand neces- 
sarily implies that a greater amount of wages is distributed 
among the same number of persons : of course, the share or 
wages of each will be greater than before. Audi fourthly, the 
contrary effect to this will plainly be produced by a dimi- 
nished demand. This reasoning in regard to the exchange- 
able value, or wages, of labour, I need hardly say, is 
applicable to labour of every sort, bodily or mental, — however 
rude or refined. 

The prices, or exchangeable values, of all things, including 
labour, are determined then, in every instance, by the relation 
subsisting between supply and demand. 



50 TIIK PRINCIPLES OF 



CHAPTER IX. 

NATURAL AS DISTINGUISHED FROM MARKET PRICES — NATURAL 
WAGES. 

If prices were ever fluctuating, without regard to any- 
fixed law, no other account could be given of them than that 
they are determined by the relation subsisting between 
supply and demand ; and our analysis in respect to them 
would necessarily be here at an end. But wherever any 
constancy can be observed amidst the changes observed, 
there we may be assured that such a law exists, and is a 
legitimate subject for our investigation. Now any one who 
will carefully compare, for a sufficient length of time, the 
prices of a particular article, in any market, will find that, in 
a few cases only excepted, there is such a thing as a mean or 
average price, which may be regarded as invariable, while 
the actual or market prices seem, as it were, to oscillate 
about them, and to have a constant tendency to approach and 
to become equal to them. On what circumstances do these 
average prices depend ? Or, which is the same thing, why is 
the price, at any period, of an article, what it is on the average, 
and neither more nor less 1 The inquiry is one, not only 
more recondite than that in which we have been lately 
engaged concerning market prices, but also more intimately 
connected with the most important deductions of our science. 
I must, therefore, ask the particular attention of the reader, 
while I pursue it. 

It naturally subdivides itself into two separate inquiries ; 
the one relating to the price or wages of labour ; the other to 
the prices of the different constituent portions of wealth. I 
might, indeed, say here of material wealth, because, as it will 



POLITICAL ECONOMr. 61 

be recollected I stated in the preceding chapter, the price or 
compensation for intellectual or immaterial products is 
resolvable into the wages of labour. 

Let us first enter upon the inquiry respecting wages. It is 
obvious that, if the circumstances under which the labour of 
man is exerted were in other respects the same, wages will 
be every where always in proportion to the quantity of 
labour ; in other words, the wages of labour will be the same 
in all employments. For if they were not so, labour would 
be transferred from those employments where lower wages 
were paid to others in which the remuneration of labour was 
higher ; and the rising generation, in seeking for themselves, 
or parents, in seeking for their children, the most advantageous 
employments, will prefer such as yield the highest wages. 
In this manner, by diminishing in some employments, and 
increasing in others, the supply of labour, an equaUty of 
wages would be ultimately established ; though with more or 
less rapidity, according to the greater or less analogy exist- 
ing between the occupations from which and those to which the 
the transfer of labour is made, and the consequent facility or 
difficulty of making such transfer. 

The wages of labour are however, in reality, exceedingly 
unequal. Compare, for example, the wages of a common 
day-labourer with those of the professional man, or with those 
of the artist. Hence we may infer that there are other 
circumstances, besides the quantity of labour applied, which 
have an influence on the amount of wages received in different 
occupations. These may be all classed under the two follow- 
ing heads. 

1. The agreeableness, or disagreeableness, of an occupation. 
This includes such considerations as the following: the 
hardness or easiness of the work to be done ; its being cleanly 
or filthy ; its requiring a greater or less degree of exposure ; 
its being healthy or the reverse; its being more or less 
steady ; the probability or improbability of success in it ; 



52 TUE PRINCIPLES OP 

its capability of being exercised at Jiome or not ; the degree 
of honour or disgrace attached to it. It will at once be 
perceived that considerations of this nature will combine 
with the amount of wages to be received, so to regulate the 
supply of labour in every occupation, as to estabhsh an equality, 
not of wages, but of advantages and disadvantages gene- 
rally, comprehending of course, under these terms, a higher 
or lower rate of wages, as an element, though one element 
only. 

2. When different employments exact from the labourer 
peculiar endowments, natural or acquired. We have a case 
of this kind where any employment requires especial trustwor- 
thiness. The supply of labourers will obviously be limited 
in such a manner, as to establish on that account a higher 
rate of wages. Of this nature, likewise, are those employments, 
in which a preparatory and expensive education or training 
is necessary; in which case, the supply of labour will be 
so regulated as to determine a rate of wages sufficient to 
compensate, in addition to the labour actually applied, the 
expense laid out in qualifying the labourer for his occupation. 
His wages must be high enough to replace, on the average^ 
the sum expended in his preparatory education, with the 
usual profits. So, at least, they would be, did not the hope of 
success in his profession or calling in life occasionally operate 
on the youthful mind with somewhat greater force than the 
apprehension of failure. 

The circumstances which have been enumerated, while they 
cause a very great diversity to subsist in the amount of wages 
received in different employments, will also cause wages in 
each of them to tend continually to a certain rate, which, 
when attained, offers no inducement for a transfer of labour to 
or from it. These average wages, about which the market 
rates of wages are ever oscillating within certain limits, may 
be designated as natural or necessary wages ; natural, because 
the market rates of wages have a tendency to coincide with 



POLITICAL ECONOMY. 53 

them ; and necessary, because they must be at least so high, in 
order to ensure the continued production of any commodity, 
in the usual quantity. And when, so to speak, an equilibrium 
takes place with respect to wages, by the contemporaneous 
establishment of their natural rates in all the various employ, 
ments of industry, the rates of wages may be said to become 
equalised; although the expression may not be such as is 
altogether desirable, and is accurate only in reference to all the 
circumstances of ad vantage or of disadvantage, accompanying 
the application of a given quantity of labour. 



CHAPTER X. 

THE SUBJECT OF NATURAL WAGES CONTINUED. 

There might perhaps in some occupations seem, at first 
view, to be no uniform natural rate of wages, on account of 
the' compensation which is paid to different individuals for 
their work or services, during equal portions of time, being 
occasionally different. This is owing to the capacity, or skill, 
of all persons not being the same. He who does twice or 
thrice as much work of the same sort, in the same time, dis- 
poses in reaUty of twice or thrice the quantity of labour ; the 
exchangeable value, or wages, of which will, therefore, be 
compensated in both cases alike. The wages of labour will 
be at a certain fixed rate in each occupation ; while the daily, 
weekly, or monthly wages of the labourer may admit of a 
certain degree of diversity. Where, however, the work done 
is not such as all persons engaged in the same general employ- 
ment are able to perform, the case will be similar to that 
already considered of different occupations, which require 

8 



54 



THE l'RIKCiri,E8 OF 



from the labourer diflerent endowments, natural or acquired ; 
and the effects on wages must necessarily be the same. 

All that has hitherto been said on the present branch of our 
subject has been founded on the suppositions, first, that every 
mdividual, in seeking for employment, is actuated exclusively 
by interested motives,— and secondly y that full scope is given 
to the operation of the principles of supply and demand. Where 
either of these suppositions does not hold good, wages may be 
permanently above or below their natural rate. It may not be 
uninteresting to specify a case or two. One, and sometimes a 
very striking one, of the absence of interested motives in the 
regulation of wages, is presented by the christian missionary, 
who, not applying his ministrations where there is the most 
demand for them, using the word in its politico-economical 
acceptation, is often content with comparatively a slender 
portion of the comforts of life, or perhaps even exposes himself 
to peril and privation among remote and savage nations, for 
the sake of promoting the highest interests of his fellow-men. 
Those guilds or corporations of trades, statutes of apprentice- 
ship, and other regulations of the kind, the offspring of the 
dark and middle ages in Europe, whose effect is to limit the 
supply of labourers, afford examples of cases in which wages 
may be artificially maintained at a rate higher than their 
natural rate. The salaries of public officers, also, have some- 
times little or no immediate connexion with the principles of 
supply and demand. This arises from the dispensers of offices 
undertaking, in most cases very properly, to judge of the 
qualifications of applicants or candidates to fill them with 
advantage to the public, and of the amount of the salaries 
which it is fitting to pay. If an appointment to office involved 
simply a contract for the performance of certain duties, indi- 
viduals could often be found willing to perform them for a 
small pecuniary compensation, or even no compensation at 
all Indeed, some of the most important might actually com- 
mand a considerable price in the market. How many per- 



POLITICAL KCONOMT. 



sons, and very incompetent persons too, would be willing, for 
instance, to bid very high for the presidency of the United 
States, if, as happened to the throne of the Roman Empire, it 
were to be put up for sale at public auction ! 

Again, all that precedes has a relation to occupations pur- 
sued in the same place or district. But wages may, in different 
parts of a country, be at very different rates in the very same 
occupations. Besides the expense, in a greater or less degree, 
connected with every change of residence — an expense which 
the great majority of labourers may be very ill able to afford — 
man is, in general, on other accounts not readily to be moved 
from place to place. When he consents to the adoption of such 
a step, he must likewise make up his mind to a rupture of the 
ties of kindred and of friendship, and to do violence to the thou- 
sand associations which bind the heart of every one to the place 
of his birth, or the home of his youth, — to go, if his destination 
be a remote one, to perhaps an uncongenial climate, and a 
different system of manners and customs. Similar observa- 
tions will apply to emigration from any country to a foreign 
one, and with still greater force ; for the emigrant will, for the 
most part, have to encounter the inconvenience of a still greater 
diversity in the condition of society, together with those arising 
from a difference of language, and will, at all events, become 
subjected to another government, not always administered on 
better principles than his own ; with which it may even come 
occasionally into hostile collision. The considerations, some 
or all them, which have been mentioned, do, in fact, produce a 
permanent difference in the rates of wages in different coun- 
tries, and in different parts of the same country, by preventing 
as rapid and as extensive a transfer of labour, from where 
wages are lower to where they are higher, as would other- 
wise take place. 

I shall conclude, for the present, my remarks on wages, by 
deriving from the doctrine of their equalisation in different 
employments the practical consequence, that although, if every 



56 THE PRINCIPLES OF 

individual were to be entirely indiflerent in the choice of an 
occupation, such equalisation could not take place, and wages 
would vary according to no fixed law, the question of the choice 
of a profession or trade is still one of less importance and diffi- 
culty, and ought to be one of less doubt and hesitation, than 
is very commonly supposed ; and a particular individual will 
incur but little hazard of committing any great mistake in his 
choice, if he follow the bent of his inchnations, and select that 
occupation for which he has, most probably, the greatest 
aptitude. Since all occupations in the same region of country 
are, on the average, every circumstance considered, equally 
advantageous, he may rest assured that if, at a particular 
period, there should be in one place an over-supply of any 
species of labour, there will, it is extremely probable, be con- 
temporaneously an under-supply of the same species of labour 
in some other place, and that the over-supply in question can 
be only temporary. It is often very remarkable, also, how 
rapidly an under-supply of labour sometimes ceases to exist, 
and is even converted into the contrary state of things, by an 
influx of labourers from where the supply is more abundant, — 
each labourer being apt to forget that every other may be 
operated on, to induce a change of his residence, in the same 
manner as himself. 



POLITICAL ECONOMY. 57 



CHAPTER XL 

NATURAL PRICES GENERAL RATE OF PROFITS TRANSFER OF 

CAPITAL. 

I PROCEED to the second head of inquiry in respect to average 
prices, viz. the circumstances which determine the average 
prices of commodities other than labour. If vv'e suppose capi- 
tal to be apphed in every branch of industry under similar 
circumstances of advantage or of disadvantage, proofs excepted, 
it will necessarily follow that these must also have a tendency 
everywhere to equality ; for if they were at anytime unequal, 
the interests of the capitalists would obviously lead them to 
transfer their capitals from the less to the more profitable 
employments ; and this again, by diminishing the supply, and 
therefore raising prices in the former, — and increasing it in 
the latter, and therefore lowering prices, — would tend to the 
establishment of a general rate of profits. The market prices 
of commodities will, of course, continually fluctuate about 
those prices which determine that rate of profits, and will like- 
wise always have a tendency to an equality with them. These 
average prices, as in the analogous case of wages, are denomi- 
nated natural or necessary prices ; natural, because market 
prices naturally tend to a coincidence with them ; and neces- 
sary, because prices at least as high are necessary to secure 
the continued production of a commodity in the usual quan- 
tity. The deviations of market from natural prices may be 
greater, and endure for a longer time, according to the diffi- 
culty of transferring capital from the employments yielding a 
lower to those which yield a higher rate of profit. 

The possibility has been taken for granted of transferring 
capital from one employment to another. In this nothing was 
assumed beyond what every one knows to be a fact. As, 



58 THE PRINCIPLES OF 

however, tlic mode in which such transfer is effected is a 
matter of some importance in its bearing on many practical 
questions, it may be worth while to endeavour to give pre- 
cision to our ideas respecting it It must be manifest, in the 
first place, that capital may sometimes be very readily trans- 
ferred from one analogous employment to another. A steam 
engine, for example, employed in one manufacture, may, 
very possibly, be quite as well fitted for a different one. In- 
deed, there is a certain portion of capital which is almost 
equally suited for every employment : such, I mean, as the 
food and clothing of many classes of workmen. These, it is 
obvious, may be very nearly the same in very different occupa- 
tions, and admit, consequently, of a ready transfer from one to 
any other. Again, though there are certain specific portions 
of capital which are absolutely intransferable from the pur- 
poses to which they are appropriated to certain others ^having 
little or no analogy with them, as, for instance, the ship from 
commerce to agriculture, — yet capital, estimating its amount 
by its exchangeable value, may, even in such cases, be said 
with propriety to be, to a certain extent, gradually transfer- 
able. How so ? it may be asked. Does not this seem like a 
contradiction in terms 1 This is the explanation. The motive 
for desiring to transfer capital can here be no other than a 
difference in the rate of profits. Now if a specific portion of 
any one's capital be absolutely intransferable, that desire, it is 
plain, can only be productive of its proper effect by the trans- 
fer of the remaining portion of it ; but this will not at once 
take place, and the portion of capital first mentioned be 
abandoned, unless a greater amount, and not simply a higher 
rate, of profits shall be received than before. The transfer 
in question will, therefore, be gradually effected by omit- 
ting, where it can conveniently be done, to repair the wear 
and tear of the old and intransferable portions of capital, and 
by not substituting new machinery or other instruments of 
production in their place, when those in use become dilapidated 



POLITICAL ECONOMY. 59 

or unserviceable. By such a process alone, may the navigating 
capital of a nation, for example, be at all transferred from the 
ocean to the land. 

It is usual to speak of the losses incurred by every transfer 
of capital from one employment to another. This is, 
however, an inaccuracy. The transfer is made, in order that 
the lohole amount of profits received shall be augmented ; and, 
no matter how much capital may have been abandoned in the 
transfer of the remainder, this remainder, because a greater 
amount of profits is now received than before, will have a 
greater exchangeable value than the entire capital had ; and 
hence, so far from there having been any real loss of capital, 
the portion of it abandoned will have been more than compen- 
sated. If, indeed, the capitalist had been induced to transfer 
his capital, because profits, in the former application of it, 
had fallen below the general rate, he would have incurred 
a loss before any transfer had taken place ; which, so far 
from giving occasion to any additional loss, is had recourse 
to for the purpose of preventing such a result. 

Although the distinction between capital as more or less 
readily transferable is not identical, as must have been 
already perceived, with that of circulating and fixed capital, 
they will nevertheless be found, in the majority of instances, 
to approach very near to each other. Hence it is that, in 
reference generally to the transfer of capital, it is quite 
customary to speak of fixed capital as being of course trans- 
ferred with difficulty ; and the reverse with respect to 
circulating capital. 

Perhaps it may be thought by some that, in order to 
demonstrate the law of the general equalisation of profits, it 
is unnecessary to establish the possibility, and still less so to 
exhibit the manner, of transferring capital from one employ- 
ment to another; and that an equality of profits would 
ultimately, though in many cases slowly, be produced by the 
continual application of the accumulating capital to the most 



CO THE PRINCIPLES OF 

profitable employments. But, not to mention that, in a 
stationary or declining country, there is no such thing as an 
accumulation of its capital, speaking of this as a whole, an 
attentive consideration of the subject will enable my readers 
to perceive that, if capital be in fact accumulating, or, which 
is the same thing, be increasing, it must do so in all or 
nearly all employments, and that an addition must, in conse- 
quence, be making simultaneously, as well to the compara- 
tively intransferable portions of the capital of a country, as 
to those that are transferable, — to fixed and circulating 
capital alike. We may therefore conclude, that to invest any 
portion of the accumulating capital, so as to yield the great- 
est profits, implies in every case a transfer of capital, 
excepting only when the newly existing capital is already 
most profitably applied, — and implies too a transfer of 
fixed capital. The only exception to this, and it is a very 
rare one indeed, being when the less profitable employments 
might happen to have circulating capital alone apphed to 
them. 

Before proceeding farther, it may be proper to mention 
that, in my reasoning on the subject of natural prices, I have 
taken for granted the possibility of producing every commodity 
in a greater or less quantity, at pleasure. Now this is not 
always true. There are a few things which, from their very 
nature, do not admit of reproduction at will ; and of whose 
exchangeable value no other account can be rendered than 
that it is determined on the principles of supply and demand. 
They have a market price, but no natural price. " Some 
rare statues and pictures, scarce books and coins, wines of a 
peculiar quality which can be made only from grapes grown 
on a particular soil, and of which there is a very limited 
quantity, are all of this description." 



POLITICAL ECONOMY. CI 



CHAPTER XII. 

SUBJECT OP NATURAL PRICES CONTINUED THE ORDINARY RATES 

OP PROFITS DETERMINATION OF THE PRICES OF COMMODITIES 

BY THE COST OP PRODUCING THEM. 

In establishing the existence of a general rate of profits, and 
the existence likewise of certain natural or necessary prices, 
which, when paid for any commodity, will yield the capitalist 
that rate of profits, and to which market prices have a 
constant tendency to conform, it will be recollected that a 
perfect similarity was assumed as regards every circumstance 
of advantage or disadvantage in the application of capital to 
different employments, excepting only the rate of profits to be 
received. Now if those circumstances be supposed to vary in 
different employments, as they in reality do to a certain extent, 
though in general to an extent that is inconsiderable when 
compared to the variations in the similar circumstances 
■which have an influence on the rate of wages, it is evident 
that they will so modify the distribution of capital, as to reduce 
the rate of profits in each employment so much below the 
general or average rate, as may counterbalance the posses- 
sion by the capitalist of any peculiar advantages in other 
respects, — and to raise it on the contrary supposition. 
Advantages of the kind adverted to were conferred on 
agricultural capital in the different countries of Europe by the 
feudal system, which associated, not only nobility, but also 
peculiar privileges and power, with the possession of large 
landed estates. And even in our own country, where the 
spirit of civil and rehgious liberty has, from its first settlement 
by Europeans to the present time, watchfully guarded against 
the introduction of institutions partaking in any degree of 
feudality, the right of suffrage has been in certain cases 

9 



G2 THE PRINCIPLES OF 

confined by the constitutions of some of the states to freehold- 
ers ; thus granting a peculiar, though perhaps a compara- 
tively slight, advantage to the owner of real property. 
Independently, however, of any peculiarity in the organisation 
of government, or the institutions of society, the possession 
of real property, — of houses and land, — in consequence of their 
visible and permanent character operating on the minds of 
men, makes a stronger impression of riches than an equal 
amount of personal property would do. Their owner gains 
more of that consideration and influence in society which is 
every where, in a greater or less degree, acquired by the 
possessors of great wealth, and will, consequently, be 
induced to content himself with a diminished rate of profits. 

The inequality existing, at the same period of time, in the 
profits of capital among different nations, having a constant 
and extensive intercourse with each other, is to be accounted 
for on the same principles. If an inhabitant of any one 
country could, by transferring his capital to another, augment 
his profits, — and the remark is equally applicable, only in a 
less degree, to the transfer of capital from one province to 
another of the same country, — he might, nevertheless, be 
disinclined to take such a step, through an unwillingness to 
be separated from his property, and to entrust it to foreign 
management and foreign legislation; and the difficulties in 
the way of his emigrating with his property, — difficulties 
which have been already stated, — are far from being at all 
times easily overcome. 

But although, in consequence of the different circumstances 
of advantage or disadvantage in which capital is apphed, 
profits will not tend to an absolute equaUty in all employments, 
even in the same district of country, it is plain that they will 
have a tendency to be at such a rate in each, as will offer no 
motive for transferring capital from one employment to 
another ; and that rate will, of course, be the ordinary rate 
of profits. When, too, the ordinary rates subsist at the same 



POLITICAL ECONOMY. 63 

time in all employments, profits, as in the analogous case 
concerning wages, may be said to be equalised. With 
respect to natural prices, they will have the same relation to 
the various ordinary rates, that they were shewn to have to 
the general rate, of profits ; and their relation to the market 
prices of commodities will also be the same as before. 

I may here derive a like practical lesson concerning the 
channel into which capital can, at a given time and place, be 
most profitably directed, as I did in reference to the choice of 
an occupation, when I treated of the equalisation of wages. 
There is room, no doubt, for the exercise of that sagacity 
which is the characteristic of the expert man of business, in 
the disposition to be made of capital ; but it is still true that, 
let an individual dispose of his capital in any employment as 
he will, he cannot expect to make eventually more than the 
ordinary profits. Those investments of capital, indeed, which 
seem often to promise most are very apt to be less profitable 
than others. Just as, when any market is supposed to be 
understocked with labour, there labourers will congregate 
from other quarters, and will, in consequence, bring about 
frequently a contrary state of things ; so, with the exception of 
a few who may succeed in getting the start of all others, the 
capitalists, who embark in speculations on account of an 
impression generally diffused of their being more than ordina- 
rily profitable, are precisely those who are most likely to be 
losers instead of gainers. Every one acts very much as if 
others had not the same motives with himself to do as he is 
doing. And so much capital comes to be invested as to glut 
the market with its products, and to cause prices to fall, and 
sometimes to fall ruinously low to the producers. Instances of 
the kind can scarcely fail to occur upon the unexpected open- 
ing of ports of commerce ; and also on the granting by 
governments of peculiar encouragement or privileges to any 
one branch of industry over others. 

It may now be mentioned that, where the price of any thing 



64 THE PRINCIPLES OP 

is just sufficient, besides replacing the capital consumed in its 
production, to yield the ordinary profits to the capitalist, it is 
said to repay the cost of producing it. Hence natural prices 
are determined by the cost of production. And since market 
prices are ever fluctuating within certain limits about natural 
prices, and tend continually to an equality with them, the cost 
of production may be correctly said to regulate prices univer- 
sally, market as well as natural. 



CHAPTER XIII. 

EFFECTS OF MONOPOLIES ON PRICES. 

The two important laws which have been deduced, of the 
equalisation of profits in the different branches of industry, and 
of the determination of the prices of commodities by the cost 
of producing tliem, do not apply to the case of a monopoly. 

Let us suppose the exclusive privilege of producing a parti- 
cular article to be bestowed on an individual, or a number of 
individuals associated together and acting in concert. In the 
first instance, let it likewise be supposed that the capital at 
their disposal is not sufficiently large to enable them to supply 
the market with the commodity which they produce, in suffi- 
cient abundance to cause it to be sold as low as its natural 
price. The consequence is manifest, that they will receive 
more than the ordinary profits. 

The supposition is, however, hardly admissible that they will 
not in all cases, while they make more than the ordinary 
profits, have it in their power to borrow, or otherwise to pro- 
cure, an additional capital, if they should deem it expedient to 
do so. Let us then assume, in the next place, that the monopo- 
hsts find no limit to their power of producing, in a deficiency 



POLITICAI. ECONOMY. 65 

of capital. The exertion of this power will be now limited 
only by the interest of the producers. They will understock 
the market; because, by so doing, they will receive more than 
the ordinary profits ; while, at the same time, these profits 
will be yielded to them by the capital which they may invest 
in any of the unmonopoUsed branches of industry. 

If, in this state of things, capital be transferred from the 
monopoly to other employments, two effects of an opposite 
description must result : the profits of the portion transferred 
will be diminished ; and those of the remainder will be aug- 
mented. The former will yield only the ordinary profits ; and 
the profits of the latter will be augmented in consequence of the 
rise of prices resulting from the diminution in the supply of the 
monopolised commodity. These two effects cannot be always 
equal to, and neutralise, each other ; for, if so, when the 
whole monopoly capital is transferred, its profits ought not to 
be less than before. But it is evident that they will then be 
lessened, because they will be just equal to the ordinary 
profits. 

Nor can any one of the two effects produced be, in this 
manner, uniformly greater than the other, so that profits shall 
be continually lessened ; because, if this were the case, when 
capital is transferred in the contrary direction, from other 
employments to that which is monopolised, the excess of the 
actual above the ordinary profits ought, on the other hand, to 
become continually greater and greater. But this also does 
not, and cannot, correspond with the fact. As soon as the 
transfer is sufficient to cause the market price of the monopo- 
lised commodity to fall so low as its natural price, the whole 
capital of the monopolists will yield profits no higher than at 
the ordinary rate ; and a further transfer will diminish still 
more the amount of profits received. 

We are, hence, entitled to conclude that there is a certain 
amount of capital which can be most advantageously, on the 
whole, invested in the production of any monopolised commo- 



CO THE PRINCIPLES OF 

dity, — an amount less than what would naturally be invested 
in its production, if all persons were at Uberty to engage in it, 
— yielding more than the ordinary rate of profits, and main- 
taining prices at a higher level than they would naturally 
be at. 

The height to which it is for the advantage of the monopo- 
lists to raise prices and profits, by diminishing the supply, 
varies with the nature of the commodity they produce. It 
needs no formal proof to be convinced that they will be dis- 
posed to raise them higher, according as this commodity 
approaches more nearly to the character of a necessary of 
life. What, however, is not so obvious, although experience 
makes it equally certain, is that the profits of capital, very 
frequently, even where luxuries are the objects of production, 
increase in a much greater ratio than the supply is diminished. 
This is strikingly exemplified by the following instance, out of 
many that might be adduced from the history of monopoly. 
The Dutch East India Company, when, through a miscalcu- 
lation of the demands of the market, they had imported into 
Holland too large a quantity of spices, found it for their inter- 
est to consign a certain portion to the flames, rather than offer 
the whole for sale ; the value received for the remainder more 
then compensating the company for what was burned. 

If, instead of the exclusive privilege of producing a com- 
modity being granted to any individual, or company of 
individuals, they have the exclusive power to produce it in a 
particular manner, this manner being the most advantageous 
or economical one, either in consequence of the possession by 
them of some secret in the arts, or of their having a patent 
right to the sole use of new and improved methods of produc- 
tion, or otherwise, the effects in regard to prices and profits 
will clearly be the same as in the case of their possessing an 
entire monopoly, — with this exception, the reason of which 
is obvious, that they could not raise prices, and of course 
their profits, at least for any length of time, higher than to 



POLITICAL ECONOMY. 67 

the rate which would enable other capitalists to make the 
ordinary profits in the accustomed modes of producing. 

It may be proper to mention here, as partaking in a degree 
of the nature of a monopoly, the advantage which those 
parties have in any market who first engage in an employ- 
ment. There are always extraordinary expenses at the 
outset in every new undertaking ; while some time must 
necessarily elapse before the customers of the producers 
already established can be induced to deal with the competi- 
tors of the latter on equally favourable terms. The existing 
producers may, moreover, often exclude any apprehended 
competition by temporarily lowering their prices, and indem- 
nifying themselves for the temporary loss by raising prices 
when competition has ceased to be threatened. Such a course 
can, however, be practised with effect only in markets which 
are very limited in their nature, and more especially in respect 
to commodities which, in other and neighbouring markets, 
mayj be sold at a lower price, without offering a motive 
sufficient for their being imported, on account of the expense 
of transportation. 

A large capitaUst has similar advantages too over smaller 
capitalists, in addition to the greater economy with which his 
capital^ is susceptible in many cases of being managed. He 
can afford to receive a diminished rate of profits for a time, 
for the sake of excluding competition. 



88 TUB PRINCIPLES OF 



CHAPTER XIV. 

OF RENT. 

Many branches of industry do not yield the same rate of 
profits to all the different portions of capital invested in them. 
This is always the case when the situations adapted to the 
investment of capital are not all equally favourable to pro- 
duction. A very striking instance of the kind is furnished by 
agriculture, both on account of the very great diversity in the 
quality of the land, and the very different degrees of facility 
■with which its produce can be conveyed to market. And a 
similar remark, differing only in the extent of its application, 
may be made in reference to the mines, to the fisheries, to 
such manufactures as are produced in circumstances more 
or less favourable, as, for example, such as are produced 
through the instrumentality of water power, and even in refer- 
ence to trade, for, in every town or village, there are certain 
situations which are regarded, and in reality are, the best stands 
for business, — where the largest profits are made. In all such 
cases, it is the capital last applied which yields a rate of 
profits in correspondence, or equilibrium, with the ordi- 
nary rate of pi'ofits in other employments generally ; since 
if it yielded less, it would, of course, have been other- 
wise invested, and if it yielded more, a greater amount of 
capital would have been invested together with it in the same 
branch of production, so as, by augmenting the supply of the 
commodity produced, to make this supply more abundant, 
prices consequently lower, and thus to cause profits to fall to 
the ordinary rate. 

The last applied portion of capital may, in general, be 
supposed to be applied under the most unfavourable circum- 
stances. Take, for instance, the case of the land. As society 



POLITICAL ECONOMY. 69 

advances, additional capital will be applied, both to the land 
already cultivated, and for the purpose of taking new land 
into cultivation. When it is applied to the former, every one 
at all acquainted with the nature of the soil will at once 
acknowledge the impossibility of the produce increasing 
proportionally : the application of a double capital will not be 
followed by a double crop. On the other hand, when new 
land is taken into cultivation, the returns to the capital 
applied to it cannot be as large as those to the capital before 
applied to olde?^ land, or the new would before have had the 
preference. This was before passed by, either because it 
was of inferior fertility, or less favourably situated with 
respect to a market. A similar mode of reasoning, too, will 
apply, with a very slight modification, not in any degree 
affecting its force, to all the other instances enumerated, of 
employments yielding unequal profits to the different portions 
of capital applied to them. 

An exception of which the proposition admits, — that the 
last applied capital is, at the same time, that which is applied 
under the most disadvantageous circumstances, — is where 
mistakes in judgment occur on the part of individuals when 
investing their capital. Another is when the situations 
or sites where capital was before apphed have, since such 
application, deteriorated, and where, on account of the 
difficulty of transferring the capital already applied, this 
continues for a time invested as heretofore, though with 
profits below the ordinary rate. With these exceptions, and 
they are exceptions of comparatively little practical conse- 
quence, always implied, we may consider the proposition to be 
established. 

Now the natural price of any commodity has been shewn 
to be that price which, after replacing the capital consumed 
in producing it, will yield to the capitalists the ordinary 
profits. It follows, therefore, from what has been stated that 
the cost of production, which determines the price of a 

10 



70 THE PRINCIPLES OP 

commodity, is the cost of producing it with the capital last 
apphed, or with the capital applied under the most disadvan- 
tageous circumstances in which the commodity in question is 
actually produced. 

Political economists have found it expedient to separate 
from the profits received in any employment that portion by 
which they may exceed in amount those yielded to the 
capital invested most disadvantageously in the same employ- 
ment, and have designated such excess by the name of rent. 
All land, consequently, yields rent, excepting the land just 
taking into cultivation ; and so too does every portion orcapital 
which is applied to the land before cultivated, with the 
exception only of what is the last applied. And having 
separated from profits every thing beyond the ordinary rate, 
under the denomination of rent, we are again entitled to say, 
that the ordinary rate of profits is yielded by every portion of 
capital, — the case of a monopoly only excepted ; — and that 
profits are, therefore, equalised throughout all the various 
branches of industry. 

Inasmuch, also, as the prices of commodities are deter- 
mined by the cost of producing them by means of that portion 
of capital which yields simply the ordinary profits, without 
enabling the capitalist to pay any rent, it is a necessary 
consequence, that the amount of rent paid by other capitalists 
has no concern in the determination of prices: and I may 
remark that this is a point of great importance to be remem- 
bered. 



POLITICAL ECONOMY. 71 



CHAPTER XV. 

THE SUBJECT OF RENT CONTINUED — DISTRIBUTION OF THE WEALTH 
PRODUCED, AMONG THE DIFFERENT CLASSES OF LANDLORDS, 
CAPITALISTS, AND LABOURERS. 

The receivers of rent are usually classed together by poli- 
tical economists, under the denomination of landlords. It is, 
in fact, the proprietor of the land in cultivation (and an anal- 
ogous remark may be made in every case of the payment oi 
rent) who will receive the rent paid, after deducting from the 
net produce of the land the ordinary profits of the capital 
invested on it. This is obvious if he be likewise the owner of 
the capital so invested. And if he farm out his land to another, 
the latter will pay for his lease the ordinary profits of the cap- 
ital invested on the land by the former, together with the rent. 

If more than this were paid, the farmer would not have a 
sufficient motive for taking the lease ; for he will not receive, 
in addition to the wages of his labour, the ordinary profits of 
the capital he may himself employ. The farmer will not pay 
less than the amount stated, because he would then make more 
than the ordinary profits ; and others would, of course, be 
found wiUing to make a higher oflfer for the lease to the land- 
lord. So that, at all events, the landlord, or proprietor of the 
land, receives the rent : and it is worthy of notice that he does 
so, not as a compensation for any expenditure incurred by 
him upon the land in bringing it into cultivation, or subse- 
quently improving it, — on all these he receives profits, — but as 
a compensation for the use of the natural powers of the soil. 
■ Rent, as it is commonly understood, is not to be confounded 
with the acceptation of this term in political economy. When 
one person pays to another a certain sum, say 500 dollars per 
annum, for the lease of a farm, this sum is usually called its 



72 THE PRINCIPLES OF 

rent ; whereas, according to the definition which I have given 
of the term rent, it is very possible that only a small part of 
the sum just mentioned is entitled to be so denominated ; and 
the remainder may, therefore, constitute the profits of the 
capital invested on the land. 

It may be difficult, and frequently even impossible, to distin- 
guish accurately in a particular case between what is rent and 
what is profits. But the difficulty is not greater than is often 
that of distinguishing between profits and wages. Some 
tradesmen, apothecaries for example, are supposed by most 
persons to make more than the ordinary profits ; when, in 
reality, the greater part of what is so styled is, properly 
speaking, the wages of the labour employed. Such occa- 
sional practical difficulties or inconveniences, in the appli- 
cation of the distinctions in question, will not be found to 
detract from their utility, or from the soundness of the con- 
clusions to which we shall be led. 

Here it will not be uninteresting, or unimportant, to note 
the manner in which the products of labour are distributed 
among the three different classes, of landlords or proprietors, 
— capitalists, — and labourers. Since it may be assumed that 
there is nothing produced without the use or aid of some capital, 
or advances made by the capitalists to the labourers in their 
employ, it is manifest that the whole produce of labour comes, 
in the first place, into the hands of the capitalists. They then 
distribute to the landlords their share of it, and also pay to 
the labourers, not any share of it to which the latter are enti- 
tled, but their wages, or compensation in advance for their 
labour, which is to be appUed anew in the business of pro- 
duction. ^ 

Each of these classes may of course, on receiving their 
portion of the wealth produced, exchange it for money, or for 
any other commodities which they prefer to have in their 
possession ; and the possession of any specific portion of what 
is produced, or the right of possessing it, may thus be trans- 



POLITICAL ECONOMY. 73 

ferred from individual to individual many times before it is 
actually consumed, — and consumed either productively, or 
unproductively. 

I may remark too that, notwithstanding political economists 
speak of the separate classes of landlords, capitaHsts, and 
labourers, the same person may unite in himself the characters 
of landlord, of capitalist, and of labourer, or of any two of 
them. This, hovv^ever, no more invalidates the propriety of 
such a classification than that a physician, happening occa- 
sionally to be versed in theological learning, should render it 
inexpedient to draw any line of distinction j^tween theology 
and medical science. 

Instances are continually presented of capitalists who labour 
themselves in superintending the application of their capital 
to production. The farmer, who is the owner of the land 
which he cultivates, is manifestly at once both landlord and 
capitalist. And this, it is equally manifest, will not prevent 
him from being at the same time engaged in labouring, if he 
so choose. 

The land which pays rent will have a greater exchangeable 
value than the capital which has been invested upon it. 
Suppose this capital to amount to $10,000 ; and let the 
rate of profits be 10 per cent. Now if we assume the rent 
of the land to be $200, it will follow that the farmer who 
leases it will have to pay to the landlord $1200 per 
annum, — without taking into consideration what he would 
have to pay, in order to replace the wear and tear of the 
capital invested. The value of the land will therefore amount 
to a capital yielding $1200 profit, that is, on the sup- 
positions which have been made, to a capital of 12,000 
dollars. 

But if we regard the capital invested in the land, viz. 
$10,000, as the product of labour, in accordance with 
that definition of wealth which makes it to consist in " the 



74 THE PRINCIPLES OF 

products of labour," would it be equally proper, it may 
here be asked, to regard as such the remaining $2000 1 
Or ought not tliis portion of wealth to be viewed rather as 
having been produced independently of any direct applica- 
tion of labour, and in consequence merely of the existence of a 
right of property in land ? If so, we shall have presented to us 
such an extensive exception to the proposition that wealth 
consists of the products of labour, as to preclude us from 
identifying it at any time with those products. To the 
question just put, I answer, however, in the negative. A 
moment's reHG^ion will enable the reader to perceive 
that rent differs m no respect in its relation to labour from 
any other portion of the wealth produced, excepting that it 
has been produced under comparatively more advantageous 
circumstances, — circumstances, nevertheless, precisely the 
same in kind with those in which what remains to the 
farmer, after paying his rent, is produced. No one will deny 
this remainder to be the product of labour : and, therefore, no 
one can consistently deny rent to be likewise the product of 
labour. 



CHAPTER XVI. 



THE DIFFERENT MODES IN WHICH THE COST OF PRODUCTION, AND 
THEREFORE PRICES, MAY BE MADE TO VARY. 

To return, for a short time, to the subject of prices. They 
have been shewn, it will be recollected, to depend, in the case 
of every commodity, on the cost of producing it, hy means of 
that 'portion of capital which pays no rent. And it will also 



POLITICAL ECONOMy. 75 

be recollected that, when the price at which any commodity- 
is sold is just such as to replace the capital consumed in pro- 
ducing it, and to yield to the capitalist the ordinary profits, 
it is said to repay the cost of production. It is interesting to 
trace the different modes in which this cost, and consequently, 
the price of the commodity as dependent upon it (I speak of 
course of natural price) can be made to vary. I shall state 
the variations in question, with their causes, in reference to 
a consequent /<zZZ of prices ; and the causes which are calcu- 
lated to produce a change of an opposite description, will 
afterwards be manifest to every one. 

But before I do this, I shall remark that where a number of 
causes either act together, or are capable of doing so, the 
only mode in which a satisfactory theory can be deduced, is 
to trace the consequences resulting from the action of each 
cause separately, abstracting from all consideration whatever 
of the others ; and when that action is understood, we shall 
likewise know what the effects actually to be produced will 
be, when two or more of them act together. It may not be 
wholly unnecessary, too, to caution the reader, not merely in 
reference to what is immediately to follow, but likewise 
throughout the present treatise, lest he should too hastily 
generalise the inferences drawn when the operation of a 
single cause alone has been considered, and apply them 
inadvertently under every diversity of circumstances. 

The cost of production may be separated into the two 
following elements ; the capital consumed in producing a 
commodity, and the ordinary profits on the wliole of the cap- 
ital employed. Hence prices will fall, either when the capital 
consumed, or when the amount of profits received, is dimin- 
ished. 

Let us, however, analyse somewhat more in detail the 
circumstances which lead to a fall of prices. They will fall, 
first, when, every thing else remaining unchanged, the amount 
of capital employed is less than it was before. When this 



76 THE PRINCIPLES Or 

takes place, it is plain that prices must fall, as well because 
of the diminished amount of capital consumed, as on account 
of the profits of ihc capitalist being necessarily reduced 
exactly in proportion to the diminution of the capital em- 
ployed. 

Secondly, the same effect will be the consequence of a sub- 
stitution oi fixed for circulating capital. The latter was 
defined to be composed of every specific portion of capital 
which was wholly consumed in the act or process of pro- 
duction, — and the former to consist of those specific portions 
of capital which arc only subjected, during the production of 
a commodity, to wear and tear. The substitution of fixed for 
circulating capital, therefore, necessarily implies a diminished 
consumption of capital, and a consequent fall of prices. To 
put this in the most striking point of view, let us compare the 
two extreme cases of a commodity produced altogether by 
means of circulating capital, and of another produced by 
capital absolutely fixed. And for the sake of greater precision, 
let us estimate the capital employed at a particular value, say 
$10,000, with the rate of profits at 10 per cent. In the first 
mentioned case, what is produced will be sold for $11,000; 
and in the last mentioned, for only $1000 ; these being the 
sums which will, in the two cases respectively, repay the 
cost of production. The price of it will also obviously range 
from $1000 to $1 1,000, according to the greater or less degree 
of the fixedness of the capital, by the aid of which it is 
produced. 

Thirdly, the time may be diminished during which a given 
amount of capital is employed in production. When this 
occurs prices will fall, in consequence of the diminution of 
the profits required to be paid. 

Fourthly, prices will fall from any previous reduction of 
wages ; for since wages constitute a portion of capital, such 
reduction will be tantamount to the requiring of the employ- 
ment, in the production of any particular article, of less 



POLITICAL ECONOMJr. 77 

capital than before ; — and the proportion of circulating to fixed 
capital will Ukewise have become less. 

And lastly, if we suppose the rate of profits to be dimin- 
ished, the amount of profits to be received in any case will 
also be diminished ; and, for this reason, agreeably to what 
has been stated, prices must be lowered. 

More than one of the causes which are thus capable of 
eflfecting a fall of price may act at the same time, or may 
cooperate with some of the opposite causes, the tendency of 
which is to raise prices, — with this exception, that, so long 
as all other circumstances remain the same, (including of 
course among these circumstances, the productiveness of 
labour,) a general fall of v/ages is inconsistent with a contem- 
porary general fall of profits ; nor is it then possible for wages 
and profits to rise together. On the contrary, as wages fall 
profits must necessarily rise, and vice versa. 

This will be apparent if we look, for a moment, at a parti- 
cular case or two. Let the capital of an individual be assumed 
to consist of $5000 in the form of wages, and of $5000 of a 
different description, — profits being 10 per cent. The whole 
profits received will, therefore, amount to $1000. Now let 
wages fall 5 per cent. The consequence will be, that, to 
employ the same labour as before, and to produce the very 
same commodities, a capital of only $9750 will be required, 
only $4750 having to be paid for wages, instead of $5000. 
There is also $250 less of capital consumed to be replaced ; 
and this amount of what is produced will hence be added to 
the clear profits, and will raise them from $1000 to $1250 ; 
so that what is taken from wages is necessarily transferred to 
profits. — Again, let wages amount to $4000, and every other 
species of capital employed to $6000. When wages fall 5 
per cent, the requisite capital to be employed will be dimin- 
ished, as in the previous case, on account of the diminution of 
the whole amount of wages to be paid. That capital will 
now be only $9,800, instead of $10,000 ; and profits will 

U 



78 THE PRINCIPLES OF 

amount to $1200, instead of SIOOO. In comparing together 
the two cases we have been considering, the augmentation of 
profits resuhing f-om the same proportional fall of wages will 
appear to be not only unequal, it being in the one $250, and 
in the other $200, but such as to render the rate of profit 
different, in reference to the amount of capital employed: 
$1250 profit on $9750 is obviously at a higher rate than 
$1200 on $9800. And, speaking generally, the new rate of 
profits will be lower according as less labour is put in motion 
by a given capital. But such a state of things cannot con- 
tinue : a transfer of capital from the less to the more profitable 
employments will take place, until the rate of profits in all 
shall be equalised. But the ordinary profits in all must then, 
it is clear, be greater than they were before the supposed fall 
of wages. 

So much in respect to the effects of a fall of wages on 
profits. And it may be shewn, in a similar manner, mutatis 
mutandis, that a rise of wages and a fall of profits will like- 
wise accompany each other. 

This rise of w^ages, or of the rate of profits, while the other 
at the same time falls, will affect the prices of commodities 
very differently, according to the degree in which wages or 
profits enter into the cost of production. And it will, in 
general, be true, that prices will suffer proportionally more 
alteration from a given change in the rate of wages, and less 
alteration from the corresponding change in the rate of profits, 
where the circulating predominates over the fixed portion of 
the capital employed. As these two effects are always in 
opposite directions, it is also plain that the prices of some 
commodities will rise, while others at the same time fall ; and 
their exchangeable values, when compared with one another, 
will be made to vary. 

In all that has been above said concerning the manner in 
which the cost of production, and pnces in consequence, may 
be made to vary, the value of money has been tacitly assumed 



POLITICAL ECONOMY. 79 

I 

to remain unaltered. If any change should, however, take 
place in the mean time in respect to that value, so that a given 
sum of money should become more or less efficient in pro- 
curing the necessaries and luxuries of life, this will in no 
degree affect the correctness of our conclusions ; since any 
such change, as has been before explained, will itself raise or 
lower the prices of all things in the very same proportion. 

The necessary connexion, on the supposition of no simul- 
taneous augmentation of the productiveness of labour, of a 
fall of wages with a rise of profits, as well as the rise of 
prices which would sometimes be consequent upon a fall in 
the rate of wages, being once distinctly understood, the 
inconsistency will be apparent of attributing, as some persons 
are apt to do, the low prices of British goods, when compared 
with the same description of goods of American manufacture, 
chiefly to the low rate of wages in Great Britain, instead of 
attributing them to the comparative lowness of wao-es and 
profits, taken together. Were it possible, indeed, to raise the 
wages of labour at once in that country, by the interference 
of the government, or in any other manner, in as much as 
this could only be accomplished at the expense of profits, it 
will follow from what has been stated, that the prices of all 
those commodities which are the products chiefly of fixed 
capitals, instead of rising in value, would be sold at a still 
cheaper rate ; and Great Britain would, in consequence, be 
enabled to export them abroad with a still greater probability 
than before of their being preferred to the similar products of 
other nations in the market of the world. I may add here 
that, since most of the British goods which are imported into 
the United States are, in fact, the products in a very conside- 
rable degree of fixed capitals, a rise, and not, as is very 
commonly supposed, a fall of wages in Great Britain, would 
cooperate with a protecting tariff, in the encouragement of 
our manufactures. 



80 THE PRINCIPLES OF 



CHAPTER XVII. 

THE PRICE, OR EXCHANGEABLE VALUE, OF ANY THING CANNOT BE 
REGARDED AS DETERMINED IN EVERY INSTANCE BY THE QUAN- 
TITY OF LABOUR APPLIED, FROM FIRST TO LAST, IN PRODUCING 
IT. 

I SHALL conclude what I have to say on the subject of 
prices, and exchangeable values generally, by an inquiry as 
to the correctness of a theory, which is a favourite one with 
some political economists of the highest order ; although no 
practical consequences of any moment depend upon its being 
true or not. 

The writers to whom I allude have attempted to shew that 
the price of a commodity is always in proportion to the 
amount of labour necessary, from first to last, to produce it ; 
but, in my opinion, have attempted to do so unsuccessfully. 
Indeed, the fact of the occurrence of a single instance of an 
augmentation of price without the instrumentality of human 
labour, — the only species of labour with which we are here 
concerned, — seems to me to be quite sufficient to evince the 
fallacy of the theory in question. Such an instance is afforded 
by wines that improve from the mere effects of age. The 
merchant who keeps them on hand must, of course, expect to 
receive the ordinary profits of capital ; and the price of the 
wine will be augmented by the amount of those profits. If 
we now suppose that, by means of some contrivance or other, 
and without increasing the first cost of the wine to the 
merchant, the same improvement in its quality as before 
could be effected in half the time, it is clear, on the principles 
already explained, that the price of such wine must necessarily 
fall, so as to exceed its original cost only by the profits upon 
it for the time thus diminished ; and we would then, conse- 



POLITICAL ECONOMY. 81 

quently, have the price of an article lowered, notwithstanding 
the same quantity of labour, neither more nor less, had been 
applied to its production. 

But the instance I have adduced is not a solitary one of the 
kind: others, though perhaps not quite so striking, are 
presented to us in the various arts of hfe, whenever improve- 
ments take place of a nature to enable a given quantity of 
labour to be productive of a commodity in a shorter period of 
time after it is applied than before. Let us look for a moment 
at the art of tanning. It is here impossible for human 
labour, no matter what amount of it may be exerted, to 
complete the process of production in less than a certain 
period. The reason is that the materials to which that 
labour is applied must, in different stages of the process, be 
subjected to the slow and separate operation of the powers of 
nature, using this expression in contradistinction to the powers 
exerted by man in the application of his labour. Under 
these circumstances, it must be evident that the price of 
leather can be made to fall in either of two ways, — by 
lessening the amount of labour required, from first to last, to 
produce it, and consequently of the wages to be paid, or by 
abridging the time which elapses from the applying of any por- 
tion of the labour employed till the last act of production 
be performed. I mean this, it needs hardly be mentioned, on 
the supposition of the rates of wages and profits remaining 
unaltered. Should the time just mentioned be diminished, 
while the labour required continues the same, the instance 
under consideration will be perfectly analogous to that of the 
wines before spoken of: in both instances alike, prices will 
have been afiected by the diminution of the profits to be paid. 
And they will, in fact, never be determined exclusively by the 
amount of the labour exerted, except in the scarcely suppos- 
able case of a commodity being produced by it without any 
advances whatever on the part of the capitaUst. 

There is then another element of price besides the quantity 



82 THE PRINCirLE3 OP 

of labour employed, from first to last, in producing a com- 
modity, to wit, the time that elapses from the application of 
the several portions of labour until the production of it in its 
complete state. But it has been objected that although labour 
has power to produce, it is impossible to understand how such 
a power can be predicated in reference to time, which is not 
a real entity, but merely a mode of existence. No such 
power is, however, intended to be ascribed to it. Human 
labour, and natural agents, are the only powers concerned in 
the business of production. The former of these, it may be 
observed, is incapable of exerting itself without the co-opera- 
tion of the latter ; and it is, therefore, impracticable, in any 
case whatever of such co-operation, to point out how much is 
man's workmanship, and how much nature's. It would be 
wrong to regard that time, which has been stated to have an 
influence on prices, to be in any manner indicative of the 
degree in which natural agents co-operate with man. Nor is 
this a matter of any the least moment in relation to our 
present inquiry : so long as a certain time must necessarily 
intervene between the application of any portion of labour 
and the completion of a commodity, just for so long a time 
must profits be realised on the wages advanced, and will the 
consequent effect be produced on prices, whether the materia 
als to which the labour is applied be operated on, in the mean 
time, by natural agents, so as to augment their utihty, or 
whether they continue in the same, or be even brought into a 
worse, condition. The amount, for example, expended in 
building the foundation and walls of a house, will be entitled 
to quite as much of profits, and will have an influence on its 
value when it is completed, equally great, as if, instead of their 
remaining nearly in an unaltered state while awaiting, so to 
speak, the completion of the interior structure, they had had 
their utility augmented, in a ten-fold degree, by the operation 
of natural agents. 

When the time, of which I have been speaking, is 



POLITICAL ECONOMY. 83 

said to determine a certain amount of profits on the capital 
expended in the employment of labour, or, what is at present 
the same thing, on the wages of labour, those profits are not 
to be understood as being in exact proportion to the time. It 
is evident that this is never the case with the profits of capital. 
Whatever may be the amount of profits on a given portion of 
it for a year, if received at the expiration of that period, 
somewhat less than half as much will be the proper remunera- 
tion for its use during six months; for such remuneration 
may then itself be employed productively. The case is 
entirely similar to that of the interest of money, with respect 
to which every one knows, that a half per cent, at the end of 
every month is preferable to six per cent, at the end of a year. 
This view of the relation of profits, and consequently of prices, 
to the time during which capital is employed, before a return 
is made to it, is entirely inconsistent with the supposition, 
that those who deny the exclusive influence on prices of the 
quantity of labour applied, from first to last, in the production 
of a commodity, ascribe to mere time a certain occult or 
mysterious power, which, from its very nature, it cannot 
possibly possess. If they in reality did so, it is very obvious 
that they would also maintain, for they would be driven to 
maintain, that such power is always exerted in proportion 
exactly to the time which is supposed to exert it ; since every 
effect is always proportional to its cause. 

It may, nevertheless, be conceded that the prices of com- 
modities are much more frequently lowered by the diminution 
of the quantity of labour which is requisite for producing 
them, or, what is the same thing, by a given quantity of labour 
having been rendered more productive, than by a diminution 
of the time required in production. Improvements of the latter 
description we know from experience to be confined within 
comparatively very narrow limits ; while, on the other hand, 
improvements of a labour-saving nature have been introduced, 
more especially in our own age, with extraordinary rapidity, 



84 THE PRINCIPLES OP 

and to a prodigious extent. Hence I would not object to the 
language of those writers who, when speaking generally, 
regard all improvements in the arts as if they resulted from a 
greater productiveness of labour; and indeed, I would not 
hesitate myself, after the remarks which have been now made, 
to do the like, merely, however, in order to avoid the necessity 
of employing a multiplicity of words. 



rOLITICAL ECONOMY. 85 



BOOK SECOND. 



ON THE TENDENCY OF RENTS, PROFITS, AND WAGES, TO RISE 
OR FALL IN THE PROGRESS OF SOCIETY ;— TOGETHER WITH 
THE LAWS WHICH DETERMINE THE NUMBERS OF A PEOPLE. 



CHAPTER I. 

EFFECTS OP THE DIMINISHING RETURNS FROM THE LAND UPON THE 
EXCHANGEABLE VALUE OF THE DIFFERENT PRODUCTS OF INDUS- 
TRY, AND UPON RENTS, OBJECTIONS TO THE THEORY OF RENT 

REFUTED. 

In the preceding book, I have defined, with as much preci- 
sion as was in my power, the principal technical terms of 
political economy. I have also, as I flatter myself explained 
distinctly the nature of price and of exchangeable value, as 
determined by the cost of production ; together with the 
manner in which they will be necessarily subjected to change, 
in consequence of any of the previous changes of which that 
cost is susceptible. 

These are points of so much importance as to lie at the 
foundation of a proper understanding of every branch of our 
general subject ; and we are now prepared to enter with 
advantage into an examination of the laws that, in the pro- 
gress of society, determine the rates of the increase of popu- 

12 



86 THE PRINCIPLES OF 

lation and of the accumulation of wealth, and that regulate 
the propoi'tio)is in which the products of industry are distri- 
buted among the different classes of landlords, capitalists, 
and labourers. In prosecuting this object, I shall begin by 
supposing the various causes which have a tendency to 
produce an alteration in the condition of society in any 
country, and, of course, the effects actually produced by 
them, to continue the same in every respect as at present ; 
with the exception of the changes which may result, either 
directly ^rom an increase of the population, or in consequence 
of the necessary operation of such increase, in giving occa- 
sion to a greater or less intensity of action on the part of 
other causes of change. And the inquiry at once presenting 
itself for consideration is : — Are there, in fact, any circum- 
stances in the nature of things which, on the supposition I 
have made, will necessarily affect the productive powers of 
labour, for the better or the worse, or will induce a rise or fall 
of rents, profits, or wages ? 

Such a circumstance is to be found in the nature of the 
land, and its limited extent. The different portions of it are 
not of the same degree of fertility, nor equally favourably 
situated with respect to a market ; and the returns yielded, on 
the application to the same land of equal successive portions 
of capital and labour, will be continually diminishing. Hence, 
as has been already shewn, the origin, and the inequality, of 
rents ; hence also, it is quite obvious that an increased popu- 
lation will be unable to produce proportionally as much as 
before. 

What has just been said, in reference to the diminishing 
returns from the land in agriculture, the reader will perceive 
is equally applicable in reference to the mines, the fisheries, 
and, in short, to all employments where rents are paid. And 
I am desirous that this applicability of my argument will 
hereafter be borne in mind in all similar cases, without any 
farther mention being made of it. By thus being enabled to 



POLITICAL ECONOMY. 87 

consider the land as the representative of a class, I shall have 
it in my poorer to express myself more simply, and more con- 
cisely. 

Another consequence, resulting from the diminishing 
returns from the land, is that the exchangeable value of agri- 
cultural products will rise in comparison with that of manu- 
factured ones ; for the cost of producing the former will now 
be comparatively greater than that of producing the latter. 
That such will be the fact will appear from the consideration 
that there is no reason why a given capital, constituted in the 
same manner, and employed during the same time, should 
not be as efficient to produce the same quantity in manufac- 
tures as formerly, except the increased cost of the agricultural 
raw material to which the labour of the artisan is applied. 

As additional capital and labour are applied to the land, 
rents will, from the cause the effects of which we are now 
tracing, be continually rising. The proprietors of the land 
will receive a larger and a larger share of the produce of 
the soil. To make this as clear as I can, let all the land of a 
country be supposed to consist of say ten different kinds, in 
relation to the circumstances which would invite to its being 
taken into cultivation ; having regard as well to favourable- 
ness of situation with respect to a market, as to fertiUty. Now 
so long as the best land. No. 1, alone is taken into cultivation, 
there will be no rent ; the whole net produce will be profits. 
But as soon as the next quality, No. 2, is cultivated, rent will 
begin upon No. 1 ; and it will amount to the difference of the 
produce of the two kinds of land. No. 2 will yield the capi- 
talist the ordinary profits: No. 1 will, besides those profits, 
pay rent. When capital is invested on No. 3, rent will 
begin on No. 2, and will amount to the excess of the net 
produce derived from it above that derived from No. 3. The 
rent paid by No. 1 will now, it is manifest, again rise, so as to 
be equal to the excess of its produce over that of No. 3, instead 
of the excess of it over that of No. 2. And so on when 



68 TUB PRINCIPLES OV 

numbers 4, 5, G, &c. are taken into cultivation. The same mode 
of exposition may be applied to the successive investments 
of capital on the land already cultivated; numbers 1, 2, 3, 
&c. denoting the equal portions of capital invested (because 
thus successively invested) under continually more and more 
disadvantageous circumstances. It must be' likewise evident 
that our reasoning will not be the less accurate, if, instead of 
ten, we suppose the number of our classes to be any other 
than ten, or even to be multiplied indefinitely, so as to accord 
with the real state of the facts, when scarcely any two por- 
tions of land are precisely in the same circumstances of 
fertility or situation. The proposition advanced may, there- 
fore, be considered as established, in so far as the rent of land 
is to be estimated by the share of its produce which goes to 
the landlord. But since, as has been explained, the exchange- 
able value of a given portion of that produce will have been 
auffmented, rents will rise on this account also. The owners 
of the land will, therefore, have a larger share of the whole 
produce of labour ; and their condition will be a continually 
improving one. 

I have so much confidence in the force of the statement 
just given of the theory of rent, that I might, I think, safely 
neglect all consideration of the objections which have been 
made to it. I shall, however, notice two of them ; and they 
are the only ones I have met with exhibiting the slightest 
shade of plausibility. 

It is, in the first place, said, that there is no land any where 
to be found, for which, when leased by its owner to any indi- 
vidual, the latter does not pay rent. There are, for instance, 
barren tracts in the highlands of Scotland which are incapa- 
ble of compensating the labour applied to them, and which, 
nevertheless, constitute no exception to this general remark. 
But it may be replied, that it is only in appearance they do 
not. When any considerable tract is leased, it may very well 
happen that certain portions of it are entirely worthless, and 



POLITICAL ECONOMY. 89 

pay in reality no rent, although they seem to do so because of 
their being comprehended within land of a superior quality. 
Again, in every instance in which the objection under consi- 
deration has been urged, it will be found that rent is paid for 
land on which, however comparatively unproductive, some 
labour has been previously bestowed, or, in other words, on 
which some capital has been invested ; and what is paid may, 
therefore, be no more than the profits of such capital. Lastly, 
we might safely grant to the objector, without any risk of 
thereby affecting practically the correctness of the theory in 
question, that no proprietor of land will have any motive to 
let another individual occupy it gratuitously, and that the 
motive to lease it will only arise when it can afford to pay 
rent. Instead of saying that all land pays rent excepting the 
last taken into cultivation, we shall have to say that all land 
yields rent, including that which is last taken into cultivation, 
which, however, yields the smallest rent possible, or at most 
a very trifling rent. 

In the second place, it is asserted, and correctly asserted, 
that, according to those political economists who adopt the 
theory of rent as I have explained it, were the fertility of 
the land to be every where augmented, rents would fall ; 
because it would not be necessary to cultivate land of as 
inferior quality as before; and because the exchangeable 
value too of agricultural products would become less, deter- 
mined as this is by the cost of production under the most 
disadvantageous circumstances in which production actually 
takes place. It is then argued that if, on the contrary, we 
suppose the land to diminish in fertility, it will necessarily 
follow that rents will continually rise ; and, consequently, they 
will be at their highest rate when the diminution of fertility 
shall have reached its ultimate limit, to wit, that of absolute 
barrenness. Is not this, it may be asked, a demonstration ex 
absurdo of the fallacy of " the theory of rent ?" I answer, no. 
What the theory maintains is that, the general rate of fertility 



00 TUB FRINCirLES OV 

being given, rents will, in the progress of society, be 'continu- 
ally rising, the proprietors of the land having a larger and a 
yet larger amount of the whole of its produce, and having, 
too, on account of its ever increasing exchangeable value, a 
larger and larger command over the whole produce of 
labour. If we now compare the land, when its general 
fertility is at a certain rate, with the same land when its 
fertility is different, the proposition which has just been stated 
will, it is obvious, be consistently modified so as to allot to 
the proprietors of the land, not in all cases an ever increas- 
ing amount of its produce or of the whole produce of 
labour, but simply a larger proportional share of what is, 
in fact, produced. There is no absurdity in supposing rent, 
thus understood, to be the highest at the nearest approach 
to the condition of perfect barrenness on the part of the 
land: a certain proportional share of a thimble-fuU of a 
commodity may be in any degree larger than a smaller 
share of millions of bushels. 



CHAPTER II. 

FARTHER EFFECTS OF THE DIMIMSHING RETURNS FROM THE 
LAND ON THE EXCHANGEABLE VALUES OF COMMODITIES, ON THE 
SUM OF PROFITS AND WAGES, ON PROFITS, AND ON THE INCREASE 
OF POPULATION AND WEALTH. 

To proceed with the consequences necessarily resulting from 
a supposed increase of population, under the circumstances 
in which man is placed on earth, of being obliged to apply 
his labour to the land ever more and more disadvantageously. 

Since the whole amount of wealth produced is less than it 



POLITICAL ECONOMY. 9l 

would otherwise have been, and since also, notwithstanding 
the diminution of that amount, a larger portion is separated 
from it for rent, it follows that the capitalists will receive a 
less proportion than they did before, or which is the same 
thing, the rate of profits will be reduced, and will remain 
thus reduced, unless the reduction should be counteracted in 
part, or wholly, by a contemporary fall of wages ; which, my 
readers will not have forgotten, is equivalent to a rise of profits. 

If we suppose wages and profits to fall in the same propor- 
tion, such an alteration in their rates, it may be worthy of 
mention, will have no effect to alter the exchangeable values 
of commodities. But agreeably to the principles already 
explained, should profits have fallen in a greater degree than 
wages, the exchangeable values of all commodities which are 
the products chiefly of fixed capitals will fall, when compared 
with the exchangeable values of those which are produced 
where the predominant portion of the capital employed is 
circulating. The contrary likewise will, of course, take place, 
if the fall of wages be the greater of the two. 

But our object, at present, being to trace the consequences 
resulting from an increase of the population of a country, 
while we, at the same time, suppose the action of all other 
causes to remain unaltered, excepting only in so far as they 
may have their intensity augmented or diminished by the 
supposed increase of population, — and this with a view to the 
simplifying, as much as possible, of our investigations, — let us, 
with the same view, also suppose the entire diminution of the 
sum of profits and wages, consequent, as has been explained, 
upon the application of additional capital and labour to the 
land, to aftect profits exclusively, and wages to remain at the 
same rate. 

Although my reasoning will proceed on the supposition 
just made, it will be easy afterwards to modify the conclusions 
arrived at, according as the diminution of the sum of profits 
and wages is supposed to affect both profits and wages, or 



92 THB FRINCIPI.E9 or 

wages exclusively. Indeed, such a modification of them will 
be so very easily accomplished, that the reader may be left to 

accomplish it for himself. 

My first proposition now will be, that a less rapid accumu- 
lation of capital will take place than before ; — a proposition 
the truth of which might, perhaps, seem at first to be suffi- 
ciently manifest from the mere fact of the sum total of 
production being now comparatively less than it was, and 
from its consequence, that every individual of the community 
will, on the average, have a less income, and will thus be 
disposed to save less. What is produced is, however, now 
somewhat differently distributed. The landlords get not only 
a larger proportional share of the whole produce, but a 
greater quantity of it than they were before entitled to ; and 
the capitalists suffer the whole loss incurred in a diminished 
rate of profits. Will this new distribution of the products of 
labour be favourable or unfavourable to saving ? It will be 
unfavourable ; more especially so where rights of primogeni- 
ture, entails, or any other politieal or legal arrangements, 
have the effect of forming, and keeping together, large landed 
estates. No persons are, in general, less apt to employ or 
consume their incomes productively than the very wealthy 
proprietors of such estates ; and, on the other hand, no class 
of persons are so much disposed to accumulate property as 
the capitalists. Such accumulation will not, 'therefore, be 
promoted by a transfer of a part of their incomes from them 
to the landlords. And again, the lower the rate of profits the 
less inducement is there to save. To illustrate this, take two 
cases differing widely from each other : that of a person 
having at his disposal 82000, when the rate of profits is 100 
per cent, per annum ; and of another with the same sum, 
when the rate of profits is only one per cent, per annum. 
Now what motive will the persons supposed have respectively 
to save a certain portion of their income, say $500 1 An 
equal amount of present gratification must be foregone by 



POLITICAL ECONOMY. 93 

both ; while, in return, the one will be enabled at the expira- 
tion of a year, instead of $500, the value of the gratification 
he might have enjoyed, to command a sum of only five 
dollars more, — and the other will receive altogether as much 
as $1000. 1 need not say which of them has the stronger 
motive to save. And the inference to be drawn from the 
comparison of other cases, approaching more nearly in 
their circumstances to each other, will only be different in 
degree. 

Again, if wages continue always the same, population and 
capital will advance together at an equal rate. This is 
manifest, because population, under the supposition made, 
must necessarily increase at the same rate with that portion 
of capital which consists of wages ; and this last rate is again 
in proportion to that of the accumulation of the whole amount 
of capital. Hence too, since the accumulation of capital has 
been shewn to be continually retarded in consequence of the 
effects necessarily resulting from the diminishing returns to 
capital and labour, when equal portions of them are succes- 
sively applied to the land, it follows that population and 
wealth will be ever augmenting at a slower, and yet slower 
rate. 

The following consequences have now been deduced : that, 
in the progress of society, from the very nature of the land, 
the whole amount of wealth produced will be proportionally 
diminished, that is proportionally to the amount of labour 
applied ; the exchangeable value of agricultural products will 
rise in reference to all other products ; and rents will be con- 
tinually rising, and therefore continually inducing, by their 
rise, a corresponding rise in the value of the land ; — also, that 
when wages are supposed to continue the same, profits will 
fall ; there will be a less rapid accumulation of capital ; and 
the rate at which population and wealth increase must, in 
consequence, be continually retarded. 

13 



94 THE PRiNCiPLKa or 



CHAPTER III. 

EFFECTS, IN AN OPPOSITE DIRECTION, OF THE PROGRESS OF HUMAW 

INVENTION. 

The consequences which have been deduced are, however, 
modified, and in certain cases altogether counteracted, by 
the effects resulting from the development^ of the powers of 
human invention, in their application to the various arts of life. 
The labour of man is thus rendered more efficient to produce ; 
and the effects of the diminishing returns from the land on 
the whole amount produced may in this manner, it is evident, 
be either partially or entirely counteracted, or be even more 
than counteracted, according to the degree of the augmented 
efficiency of labour. 

In the following remarks I shall assume, it may be here men- 
tioned, that, wherever the contrary is not expressly stated, the 
degree of industry exerted by a community continues always 
the same, — and that the proportion which the members of it 
who do not labour at all bears to those who do continues 
likewise unaltered. If then, to use the language of mathema- 
ticians, these quantities, thus at first assumed to be constant^ 
be supposed to become at any time afterwards variable quan- 
tities, the consequences on the amount of wealth produced, 
and on the progress of national wealth, will, it is manifest, be 
entirely similar to those resulting from the augmented or 
diminished productiveness of labour, as the case may be ; and 
such variation in the circumstances before supposed to remain 
unaltered, it will be perceived, will in no wise affect the cor- 
rectness of the conclusions which I am about to deduce. 
These circumstances arc, indeed, only very slowly alterable ; 
and, for this reason, the favourable effects which may occa- 
sionally result from a variation of them are quite inconside- 



POLITICAL ECONOMY. 95 

rable, when compared with those which are consequent upon 
the progress of human invention in the arts. 

The removal, too, of any of those restrictions which have, 
in every nation, more or less trammelled the industry of the 
people, and prevented it from being as productive as it 
would otherwise have been, will also be followed by effects 
perfectly analogous to those resulting from improvements 
made in any of the modes or processes of production. And 
hence, when the progress of human invention is asserted to 
be the antagonist principle to the necessarily diminishing 
returns of the land, on the application to it of successive 
equal portions of labour and capital, that progress should be 
understood, as comprehending the class of improvements 
which has just been mentioned. 

If improvements in all the arts were to take place at the 
same rate, they would obviously have no effect to alter the 
exchangeable values of things ; and that rise in the value of 
agricultural products, and corresponding fall, when compared 
with these, in that of manufactured ones, which were before 
shewn to result from the necessity of having recourse to 
inferior soils, would not at all be affected. But if we suppose, 
in accordance, very generally so at least, with the real state 
of things, that improvements are introduced in less rapid 
succession, and to a less extent, in agriculture than in the other 
arts, we shall have an additional reason why the cost of pro- 
duction in the former should continually become relatively 
greater, and the exchangeable value of agricultural produce 
should be always on the rise. 

With respect to rents, the effect of agricultural improve- 
ments wall be to cause them to fall ; for the land which is 
cultivated, in consequence, under the most unfavourable 
circumstances, needs not be as inferior as that which would 
be otherwise so cultivated ; and we may, indeed, conceive 
the improvement to be so great as to cause land of the first 
quality alone to be cultivated, when no rent at all would be 



d6 THE PRINOIPLKS OF 

paid. But besides this, the cflcct of agricultural improve- 
ments is to diminish the cost of producing in agriculture, and 
therefore to lower the exchangeable value of what is pro- 
duced. Not only will the landlords get a smaller portion of 
the products of the land ; but they will be able to exchange 
that portion for less of the necessaries and luxuries of life than 
before. 

Improvements in any of the arts, other than agriculturef 
will cause rents to rise. This will be effected in the following 
manner. If we suppose, at first, no additional capital and 
labour to be applied to the land, there will be an extraordi- 
nary demand for agricultural products, more especially for 
the agricultural raw material to be used in manufactures, 
which will of course raise their exchangeable value, and by 
thus making it worth while to take new land into cultivation, 
cause a transfer of capital from other employments to agri- 
culture. Rents must then rise ; worse lands being then culti- 
vated, and the exchangeable value of agricultural products 
becoming, of course, at the same time greater, in comparison 
with other commodities. It needs scarcely be added that 
from the very first, therefore, these effects will take place by 
means of the application of the accumulating capital in the 
proper proportion to every department of production, includ- 
ing agriculture. 

That so long as wages continue at the same rate, — a sup- 
position I have been continually making, — agricultural im- 
provements will tend to produce a rise of profits, is the 
necessary consequence of the whole amount of production 
being augmented, while, at the same time, rents are made to 
fall. 

On the same supposition again of a permanent rate of 
wages, improvements in any of the other arts, by augmenting 
the amount produced, will have a favourable operation on 
profits. But while this is the case, they will likewise tend, 
by raising rents, to diminish profits. Now which of these 



POLITICAL ECONOMT. 97 

tendencies will have the greater efficiency 1 Will profits, in 
reality, rise or fall ? This question does not, in my opinion, 
admit of a general answer ; for the degree in which rents will 
rise must necessarily depend on the greater or less rapidity 
with which the returns from the land diminish, on the appli- 
cation to it of successive equal portions of capital. This 
diminution may be supposed to take place so rapidly that 
rents shall absorb a greater amount than the additional pro- 
duction ; when it follows, of course, that profits will fall. It 
may, on the other hand, go on at a rate sufficiently slow to 
admit of profits rising simultaneously with rents. The one, 
as well as the other, of these results may, very possibly, in 
fact occur in different countries, or at different times in the 
same country ; although I am disposed to think the latter of 
the two to do so much more frequently, and in new countries 
almost always so. 

Improvements in the arts, by augmenting the amount of 
wealth produced, will hkewise manifestly induce a more rapid 
accumulation of capital. But as every rise of rents, to which 
they may give occasion, will produce, as has been shewn, a 
distribution of wealth in a certain degree unfavourable to 
saving, the rate of accumulation will, on this account, be 
prevented from being as rapid as it would otherwise be. The 
rate of increase, too, of the population being determined, 
when wages are supposed to continue always the same, by 
that of the accumulation of capital, whatever causes have a 
tendency to accelerate the latter must likewise tend to accele- 
rate the former. 

On a review of the sometimes agreeing, and sometimes dis- 
agreeing results to which we have been led, in relation to the 
varying amount and distribution of the wealth produced, I 
think there can be no hesitation to infer that, all things consi- 
dered, rents will, in the progress of society, be continually 
rising ; that it is possible for profits to rise or fall ; and that, if 
the same rate of wages be always paid, capital and population 



99 TUE PRINCirLES OF 

may increase together at the same accelerated rate, or at the 
same retarded rate. These conclusions will hardly be called 
in question, even by those who may possibly find a difficulty 
in at once admitting the correctness of one or two of my pro- 
positions, relating to the manner in which wealth is at different 
times distributed. And indeed, although it is sufficiently 
interesting to trace the progressive distribution of wealth, 
most of the great practical questions which look to the prin- 
ciples of political economy for their solution, and on the 
proper solution of which consequences of much moment to 
the well-being of society may be dependent, require nothing 
more, in reference to the conclusions just stated, than an 
assent to the possibility of capital and population, while they 
augment together, to do so with different degrees of rapidity ; 
a proposition which may be surely regarded, if any proposi- 
tion can be so regarded, as quite undeniable by the dullest, 
as well as by the most acute objector. 

It may here be mentioned that the continual rise of rents, 
which has been theoretically deduced, accords with the 
results of actual experience ; for the exchangeable value of 
land being always in proportion to the rent which it yields, 
together with the profits of the capital invested on it, a con- 
tinual rise of rents implies necessarily a corresponding pro- 
gressive augmentation of that value ; and this is well known 
to be the general fact. It is the expectation, too, of such a 
rise in the value of land, as has already been mentioned, that 
often enables it to command a price in the market quite dis- 
proportionate to the value of what it produces, and that 
sometimes confers upon it a value when it is as yet altogether 
unproductive. 



POLITICAL ECONOMY. 99 



CHAPTER IV. 

INTIMATE CONNEXION OF THE SUBJECTS OF WAGES AND POPULATION 
CHECKS TO POPULATION. 

Assuming the rate of wages to remain unchanged, we have 
inquired into the variations to which, in the progress of society, 
rents and profits will be subjected. But the receivers of wages 
are far more numerous than the classes who live on rents and 
profits, and indeed constitute the main body of every com- 
munity. Moreover, the poorer classes of society are, for the 
most part, of this description of persons. And the happiness 
of a people, as regards the degree in which it is determined 
by the necessaries and luxuries of life they can command, 
will depend much more on high or low wages being paid, 
than on the comparative rate of profits, or on the amount of 
rents received by the landlords. Accordingly, the great 
practical object of the political economist is not so much to 
promote the interests of the wealthy, by any attempt to enlarge 
the sources of their incomes, as to investigate, and to put into 
execution, the measures best adapted to give the poor man 
the highest remuneration for his labour that may be practica- 
ble, and to elevate him to as high a rank in the scale of 
society as the laws of nature, aided, and not trammelled, in 
their beneficial tendencies, by the co-operation of individuals 
and of governments, will permit. 

The important question, therefore, now presents itself for 
inquiry: — What are the circumstances which regulate the 
rate of wages ? And I do not mean here their comparative 
rates in different occupations : of these I have already treated 
with sufficient fulness. I mean the actual amount of the 
necessaries and luxuries of life which, in each respectively, 



100 THE FHINCIPLES OP 

any one is enabled to procure in exchange for his labour or 
services. 

In reply to the question which has been put, I may, hi the 
first place, remind the reader that wages have been shewn to 
be determined, in every case, on the principles of supply and 
demand, — by the relation, that is, subsisting between the 
supply of labour and the demand for it : and as the supply 
of labour, all other circumstances remaining the same, is in 
proportion to the number of labourers, and this again in 
proportion to the amount of the whole population ; while, on 
the other hand, the demand for labour is measured by that 
portion of the capital of a country which consists of wages, 
and which, again, is proportional to the whole amount of that 
capital ; — it will follow, that the rate of wages is dependent on 
the relation which the capital of a country bears to the 
numbers of the people. So long as this relation continues the 
same, wages will remain unaltered. If the population remain 
stationary, wages will rise or fall according as capital increases 
or decreases. And as an increase or decrease of capital can, 
in that case, (the same quantity of labour being always 
applied) only, it is evident, take place with an advance or 
decline in the arts, wages will then rise or fall with every 
such advance or decline. If, on the other hand, we suppose 
the amount of capital not to alter, the number of people will 
determine the rate of wages : in fact, the very same amount 
of wages will have to be divided among a greater number of 
persons. 

Hence it appears that the laws which regulate the increase 
of population must first be investigated, before the subject of 
wages can be fully understood ; or, in consequence of their 
intimate connexion, it would, perhaps, be more proper to say 
that both subjects should be investigated together. To this 
investigation I shall now accordingly proceed. 

I set out with the remark that the checks to the increase of 



POLITICAL ECONOMY. 101 

population may manifestly be classed under the two heads of 
ihe preventive, and the positive checks: the former prevent the 
birth of human beings ; the latter destroy them after they 
have been brought into existence. Of the former description, 
are late marriages, and vicious practices of various kinds not 
at all necessary to be here enumerated. Every cause of 
mortality, such as disease, pestilence, wars, infanticide, are of 
the latter description. It is obvious that we may conceive 
these checks to operate in so great a degree, as either to 
keep the population of any region or district of country 
stationary, or even to cause it to retrogade; — or, on the 
contrary, we may conceive them to operate in a degree 
insufficient to prevent altogether its increase. Indeed, any 
one of the enumerated checks, whether preventive or positive, 
may be conceived to act with an energy adequate to the 
production of either of the two former effects ; and, a fortiori, 
to all of them co-operating together, with the exception of the 
comparative lateness of marriage, the same results may be 
aJ;tributed; — so that, were every individual to marry on 
attaining the age of maturity, and the whole power of popula- 
tion to be thus called into activity, this would fail to supply, 
or to do more than supply, the places of those who were cut 
off. In reality, however, the checks to population very 
seldom operate with an energy like this. In a few peculiarly 
unhealthy spots, and during the actual prevalence of pestilence 
or war, such may happen to be the case. Nevertheless, it 
may be laid down as a general law, established by observa- 
tion, that population has the power to keep itself stationary, or 
even to advance, without the necessity of exerting the whole 
procreative force of the community. We find many nations, 
too, rapidly augmenting in numbers, while every individual 
composing them is far from marrying, as soon as he has 
reached the age of maturity. How many persons, for 
example, arc there not in this predicament in the United 
States, where the numbers of the people can be shewn, after 

14 



102 THE I'RiNciPtEs or 

making every allowance for immigration, to have doubled 
themselves in a period so short as twenty-five years, — and 
where, at the present time, no one will deny that, indepen- 
dently of the accession which it is receiving from abroad, 
population is doing much more than sustain itself! What- 
ever other causes may be, therefore, in operation to retard 
the progress of population, we are entitled to regard the 
delay of marriage, and, as a necessary consequence, the 
number of those who never marry at all, as among the causes 
which are, in every country, conspiring to produce that 
effect. This proposition may, very possibly, appear to 
the reader so obviously true, as, for the moment, to subject 
me to the imputation of being exceedingly common-place. 
But there are some subjects which have been so involved and 
obscured by controversy, that it is advisable, when treating 
of them, to run some hazard of incurring such an imputation, 
rather than fail of being perfectly understood. Of this nature 
is the subject of population. And indeed, the truth of the very 
proposition of which I am speaking has been boldly, although, 
in my opinion, very absurdly, denied by one writer at least of 
reputation in our own country. His words are, that " the mass 
of the people in all countries, and at all periods, have married, 
and always will marry, upon their arrival at maturity." 

The question now presents itself: — Why the delay, of which 
I have spoken, as to marriage ? Or, in other words, why do 
not all men marry as early as the physical constitution of their 
nature will permit ? The most prominent reason that can be 
given, for their not doing so, is the difficulty of procuring the 
means of support ; and by the means of support I not only 
mean the food which is necessary for the sustaining of life, 
but likewise all the various necessaries and luxuries which 
each individual is desirous of acquiring, — so desirous of 
acquiring, that, rather than forego doing so, he prefers the 
postponement of marriage. Population may, then, be said to 
be checked by the difficulty of procuring the means of support. 



POLITICAL ECONOMY. 103 

When these become any where more abundant, population 
augments with a greater rapidity ; and where they become less 
abundant, the contrary will take place. This law is most striking- 
ly illustrated in the case of the great mass of the receivers of 
wages, or, to use the ordinary language on the subject, in the case 
of the " working classes." When wages experience, from what- 
ever cause, a sudden rise, that is when the labourers unex- 
pectedly come to possess, in a greater quantity than before, 
the necessaries and luxuries of life, it is uniformly found that 
the number of marriages is increased. A very sensible 
influence on their number is exerted by an extraordinarily 
fruitful season, or by one which is in an extraordinary degree 
unfruitful ; as is to be inferred from the actual registers of 
marriages kept in different parts of England. When also in 
East Prussia, in the year 1711, a pestilence swept off, as it is 
said, one third of the inhabitants, and when wages rose, in 
consequence, considerably above their usual level, the number 
of marriages was prodigiously increased in the following year. 
In a tract of country where their annual number had been 
6000, it was doubled. It is not, therefore, at all surprising, 
that no effects of the pestilence should have been remarked 
after a few years, and that the Prussian population should so 
soon, as writers state, have appeared to have restored itself. 
It is worth noting too, that all this marrying, and giving in 
marriage, took place under the peculiarly unpropitious cir- 
cumstances of the gloom and mourning in which almost the 
whole community were involved, on account of the deaths of 
relatives and friends, — circumstances calculated, of course, to 
render the remarkable result still more remarkable. 

Now it must be manifest, from the known constitution of 
human nature, that the effects which have been shewn to 
result from an alteration in the existing rate of wages are like- 
wise to be attributed to every variation in the accustomed 
incomes of individuals, from whatsoever sources those in- 
comes may be derived ; nor is there any reason why those 



104 THE PRINCIPLES OF 

effects should be limited to the cases when incomes or wages 
are small. When rents or ))rofits increase, the landlords and 
capitalists will be influenced exactly in the same way as the 
labourers are by a rise of wages ; and whatever may be the 
condition of the ditrcrent classes of society, whether they be 
rich or poor, enlightened or the reverse, any improvement in 
their worldly circumstances will invariably operate as a 
stimulus to marriage. Not, indeed, in the same degree. That 
proportionate increase of his income which would constitute 
a motive strong enough to induce the marriage of ev-ery 
uneducated labourer might, very probably, not be adequate 
to influence the determination of many among the wealthy. 
For few or none among the labouring poor remain unmarried 
through choice. It is the difficulty of procuring the means of 
support alone which restrains their inclinations. On the other 
hand, according as the minds of men are cultivated and 
refined by education, or the circle of their enjoyment is 
extended, not only does the sexual passion become less domi- 
nant, and is more readily counteracted by other desires and 
passions, but individuals will be found who, notwithstanding 
any supposable accession to their wealth, would still continue 
to live a life of celibacy, through an excess of that fastidious- 
ness of taste and of feeling, and that strength of acquired 
habits, which are inseparable concomitants of education and 
refinement. 

If we make the contrary supposition of a general diminu- 
tion of income, the consequent decrease in the number of 
marriages will, of course, as in the former case, extend to all 
classes of people, and also in a greater degree to the poor 
than to the rich. 

From this view of the subject, it might be imagined that 
the effects, which have been stated to result from a rise of 
wages, should sometimes be counteracted, and entirely neu- 
tralised, by the opposite effects of a contemporaneous fall of 
rents or profits, — especially of the latter. Yet inasmuch as 



POLITICAL ECONOMY. 105 

the proportion of those who gain their hvelihood by the receipt 
of wages, in exchange for services rendered by them, is vastly 
greater than the number of those who live by rents or profits ; 
and as the great majority of the receivers of wages are pre- 
cisely those members of the community who are most readily 
induced to marry by any improvement in their circumstances ; 
and moreover, since, in the progress of society, it will fre- 
quently, if not generally, be found that profits and wages rise 
or fall together ; — we see how it is that every rise of wages, 
unaccompanied hy a con-esponding improvement in the habits 
of the people, is in fact always productive of an increased 
number of marriages, and why every fall of wages has in- 
variably the opposite effect. 



CHAPTER V. 

THE SUBJECT OF POPULATION CONTINUED. 

The proposition which I have been endeavouring to estab- 
lish, and which I hope I have succeeded in establishing to 
the satisfaction of the reader, is that "population is every 
where checked by the difficulty of procuring the means of 
support." This, however, is a very different proposition from 
that which asserts population to be checked by the difficulty 
of procuring the means of subsistence. Both of them cannot 
at the same time be true, unless subsistence be used synony- 
mously with the means of support, as applying to the whole 
revenue or income of individuals, whether this be valued at 
100 or 10,000 dollars per annum. But this sense of the word, 
notwithstanding it is in some measure countenanced by the 
authority of Dr. Johnson, in his dictionary, appears to me to 
be entirely at variance with the common use of language. 
' If subsistence be understood to comprehend the food, cloth- 



106 THE PRI>XIPLES OF 

ing, shelter, and, in short, ^vhatever is indispensable to the 
preservation of human life in its rudest and most degraded 
condition, it may be confidently affirmed that the difficulty of 
procuring the means of subsistence is no where the imme- 
diate or actual check to population. No people have ever 
existed, even the most rude, who have not, in some measure 
lived in the enjoyment of what, relative to a mere subsistence, 
may be denominated luxury: and the mass of the population 
in all civilised countries are, in general, far enough removed 
from the limits prescribed by a hard and savage necessity. 

But if the difficulty of procuring the means of subsistence, 
as the term is just now supposed to be used, — and, perhaps, 
this is the proper mode of using it, — be not an immediate 
check to population, can it be regarded as an ultimate check 1 
Does it present a limit beyond which population cannot be 
conceived to increase ; a limit which, when reached, will 
render it necessary that the numbers of mankind should be 
kept down, either by a diminution of the number of marriages 
and births, or by the aggravated devastations of disease? 
The answer to this question will depend entirely upon the 
comparative productiveness of labour in the different stages 
of the progress of society. If, when the number of labourers 
is doubled, the products of their labour will also be doubled, 
it is plain that no limits whatever can be assigned to the 
increase of population. So if labour should become compara- 
tively more and more productive. But on the other hand, if 
the powers of production should not keep pace with the 
multiplication of the number of labourers, population could 
not increase at all, unless we at the same time suppose the 
share of its products received by each individual to be less 
than before : and population, on this supposition, and on this 
supposition only, may continually approximate to the limits of 
a mere subsistence. 

The effect of the portion of the community who before 
lived on rents or profits also becoming labourers, or of the 



I'OtlTICAL ECONOMY. 107 

community generally becoming more industrious, would no 
doubt be to retard the deteriorating process which has been 
mentioned ; but it must be likewise evident that the causes of 
this retardation of the evil would be wholly inadequate to 
prevent it altogether. 

Mr. Malthus however, and most other political economists, 
restrict the meaning of the term subsistence to food merely. 
In this acceptation of it, it is even more obvious than in the 
preceding that the difficulty of procuring the means of sub- 
sistence is not, in general, an immediate check to the increase 
of population. Indeed it is never so, excepting in the com- 
paratively very rare case of actual famine. Nor can it be the 
ultimate check to that increase; for, as has been already 
explained, long before the whole labour of the community 
could be applied to the exclusive production of food, or, what 
amounts to the same thing, to the exclusive production of 
those commodities in exchange for which they obtain food, 
population would have become stationary. 

But enough, for the present, in respect to erroneous opinions, 
or in respect to objectionable modes of expressing correct 
ones. Let us now proceed with the deduction of such conse- 
quences as flow legitimately from the law which has been 
estabUshed, — that population is every where checked by the 
difficulty of procuring the means of support. First, since 
when those means become at any time more abundant, that is 
whenever the checking or counteracting^rce is in any degree 
removed, population begins immediately to increase with more 
rapidity than it did, we can make no hesitation to assent to 
the following propositions, — that population is ever pressing on 
the means of support, — and that population has a tendency to 
increase more rapidly than. the means of support. These two 
propositions are, in fact, only diflferent modes of expressing 
that from which I have asserted them to be obviously deduci- 
ble. 

Yet it is proper to mention that there are writers who have 



l08 THE PBINCIPLES OF 

objected to the ascribing to population a tendency to increase 
more rapidly than the means of subsistence ; pronouncing the 
term tendency to be one of such ambiguity as to be very pro- 
perly discarded altogether from our present subject ; and 
denying, too, the propriety of speaking of any thing as having 
a tendency to advance more rapidly than another in a particu- 
lar direction, when they, in truth, advance together. Novi^ as 
the very same objections are capable of being made to the 
asserted tendency of population to increase more rapidly than, 
or beyond, the means o{ support; and as the term tendency is 
a convenient one, which cannot easily be got rid of in refer- 
ence to the subject of population, without the use of much and 
frequent circumlocution ; I shall remark, in justification of its 
being employed in the manner in question, that it is so 
employed in perfect analogy to the use made of the term ten- 
dency in mechanical philosophy, which is the source whence 
it has been borrowed. When Sl force has been prevented in 
any manner from producing its proper effect of motion in a 
particular direction, the body on which it acts is still said to 
have a tendency to move as if not thus prevented from mov- 
ing. The mechanician, for example, speaks of the tendency 
of a heavy body, placed on a table or horizontal plane, to 
descend in the direction of gravity, though, in reality, its 
motion is wholly prevented by the resistance of the plane. So 
again, a body, placed in one of the scales of a balance, is very 
properly said to tend towards the earth, even when in equili- 
brium with an equal weight in the opposite scale ; and this 
tendency is experimentally shewn to exist, in the only way in 
which it can be made to appear, to wit, by removing or 
weakening the counteracting force, — when the body actually 
falls to the ground. In morals also, we continually compare 
the influence of motives on the mind with the action of me- 
chanical causes on matter. We speak familiarly of the 
tendency of a motive to produce its appropriate effect on the 
conduct ; and this when the actual determination of the mind, 



POLITICAL ECONOMY. 109 

through the operation of other motives, is directly the con- 
trary. And in the case under consideration, which has led to 
these remarks, it should be recollected that the sexual passion, 
and the desire to marry, are not extinguished in the breasts of 
that portion of the community who continue to live in a state 
of celibacy, but are only counteracted by the opposite motive 
of a desire for the enjoyment, in a greater degree, of the vari- 
ous conveniences and luxuries of life. If these become at any 
time more abundant, or, in other words, if adequate means for 
the support of a family are more easily procurable, a greater 
number of marriages will take place, and the previous exist- 
ence of the tendency of population to increase, faster than the 
means of support can be provided, will immediately become 
manifest. Hence, Ukewise, it appears that this tendency is 
always in exact proportion to the force of the check which is 
presented by the difficulty of procuring the means of support ; 
and consequently, that it is greatest, not when population in- 
creases most rapidly, but, on the contrary, when this increase 
is the slowest It will, of course, also be true, that, when 
population is actually making the most rapid progress, the 
tendency in question will be the least. 

This tendency I shall hereafter designate as the principle of 
population, in conformity with the general usage of the writers 
on political economy, when they speak of it in reference to 
the difficulty of procuring the means of subsistence ; and we 
shall at any time be enabled to form something like an esti- 
mate of this tendency, or of the energy with which this prin- 
ciple is acting at any particular time and place, by comparing 
the actual rate at which the population is increasing with the 
rate at which it would increase, were there no difficulty what- 
ever in procuring the means of support. Of course, the last 
mentioned rate cannot be ascertained with absolute precision ; 
but it is easy to approach to it, by assuming it to be at least as 
rapid as the rate at which ,thc population has actually in- 
creased in some one country, or region of country, situated in 

15 



110 THE FRINCIPLES OF 

average circumstances of mortality, and of those circum- 
stances which constitute the various other checks to the pro- 
gress of population, the delay of marriage only excepted. 
Since, therefore, population has actually doubled itself, from its 
own resources, in the United States of America, — which is pro- 
bably about as fair a field for observation on the subject as could 
be desired, — in so short a period of time as twenty five years, we 
may conclude that it has generally the power of doubling 
itself in that period of time ; and we see, consequently, how 
great must be the tendency of population to increase beyond 
the means of support in countries where it is actually station- 
ary, or even declining ; or, in other words, we see how 
actively the principle of population would exert itself, if the 
checks to its exertion were to be suddenly removed. 



CHAPTER VI. 

THE SAME SUBJECT COPTTINUED — HABITS OF THE COMMUNITY Ilf 
RELATION TO MARRIAGE — HOW THOSE HABITS ARE TO BE IM- 
PROVED. 

The principle of population being once established, it will 
follow that the average, necessary, or natural rate of wages 
in any country must remain always the same, so long as the 
habits of the people generally in relation to marriage continue 
the same ; for every rise of wages which may occur un- 
der these circumstances, from whatever cause originating, 
will lead to a more rapid augmentation of the population ; 
and this again will require, and be accompanied by, the 
pushing of cultivation on inferior soils, and, in general, under 
more disadvantageous circumstance than would otherwise be 
the case ; which, in its turn, as has already been explained, 



POLITICAL ECONOMF. HI 

will diminish the amount oi proportional production, and thus, 
as has likewise been explained, reduce wages, and reduce 
them too to their former level. It is unnecessary to trace the 
process by means of which a similar return to the former and 
accustomed rate of wages will be brought about, if wages, 
instead of having risen, be supposed to have fallen. My 
readers cannot avoid perceiving that it is one perfectly anal- 
ogous to that which has just been described, only occurring in 
an opposite direction. 

Now all this, it will be borne in mind, is on the supposition 
of no alteration taking place in the habits of the people, in 
respect to marriage. But these habits have been intimated to 
be, and they are notoriously (though at all times only slowly 
alterable) very different in different countries, and in the same 
country at different periods. That rate of wages, for instance, 
which would determine the marriage of every inhabitant in 
Ireland, would be regarded by a large proportion of English- 
men as inadequate for the support of a family, and, in the 
United States, would by many of the labouring poor be pro- 
nounced to be insufficient for a single individual. 

Let the alteration in respect to the habits of the community 
be such as to determine, all other circumstances remaining the 
same, a diminution in the number of marriages ; in other 
words, let these, in general, take place at a less early period of 
life than heretofore. The consequence will be that the in- 
crease of population will be retarded ; recourse will not so 
soon be had to inferior soils ; the total proportional amount of 
production will be greater than it would otherwise have been ; 
and wages will rise. They must, too, continue at this higher 
rate so long as the habits of the people do not again change. 

It is plain that every thing will occur in a contrary order, 
if we suppose those habits to vary in an opposite direction. 
The progress of population will then be accelerated ; land 
•will consequently be cultivated under more disadvantageous 
circumstances than would otherwise be the case ; the sum of 



112 THE PRINCIPLES OP 

what is produced will be lessened proportionately to the 
numbers of the people ; and wages will be permanently de- 
pressed. 

We may, therefore, lay it down as a general proposition, — 
and it is, perhaps, the most important proposition in the whole 
science of political economy, — that, in every country, and in 
every period, the rate of wages is determined by the habits of 
the people, as this term has been applied by me in the present 
chapter. 

It becomes of the utmost moment to inquire into the various 
causes which are capable of affecting those habits, in order 
that we may know how they may be improved, and a larger 
command of the necessaries and luxuries of life secured to 
the great mass of the community. Now^ there are obviously 
only two ways of doing this : first, by multiplying the wants, 
and thereby stimulating the desires of the people generally, for 
every enjoyment of Hfe that is not of an injurious or immoral 
tendency ; for, in proportion to the multiplication of the 
sources whence enjoyment may be derived, will the enjoy- 
ment derived from any one of them be in our estimation of 
comparatively less importance, and comparatively less an 
object of desire. By thus imbuing the people with a taste for 
enjoyment other than that resulting from the gratification of 
the sexual passion, they will, naturally and voluntarily, be led 
to retard the average period of marriage, and to check, by so 
doing, the too rapid increase of population. The second way 
in which the same result can be produced is by inculcating 
habits of foresight, — increasing in this manner the disposition 
of individuals to have regard to their power of obtaining the 
comforts of life in the future, as well as at the present, — a 
disposition leading them to make a still larger provision before 
marrying, or at least to see their way clearer before them in 
the world before doing so than would otherwise be the case. 

I have said that these were the only ways of checking the 
too rapid increase of population. It would have been more 



POLITIC At ECONOMT. 113 

proper to have said that these were the only ways in which it 
was expedient, or just, to attempt to apply such a check. AH 
compulsory abstinence from marriage is unquestionably to be 
deprecated. Not to speak of the immoral consequences of 
every measure of the kind, an extreme degree of odium will 
unavoidably attach to it, on account of its partial operation on 
the poorer classes of the community. Those who would thus 
be prevented from marrying would be sufferers without any 
counterbalancing advantage on their part, and might reason- 
ably require the rich to partake with them in the sacrifice to 
be made for the general good of the next generation. Such a 
measure would, indeed, be equivalent to a violation of the 
rights of property ; for when a portion of a person's property 
is taken from him, the consequence is that his enjoyment of 
the necessaries and luxuries of life must become proportion- 
ally contracted ; and a diminution of enjoyment will equally 
take place among the poor, when the luxury of marriage is 
reserved in any degree for the richer classes. 

No account is moreover, in my opinion, to be made of any 
effect which can be produced on the minds of the labouring 
poor, in inducing them to delay the period of marriage, by 
indoctrinating them in the correct principles of political econ- 
omy. To attempt this by such means would be wholly useless. 
Unless those desires which constitute the motives of action on 
the part of the poor man be in some degree modified, so as to 
induce him to do willingly, or by preference, what it is wished 
that he should do, no mere theoretical conviction of the hap- 
piness of the community being promoted, by the retardation 
of the average period of marriage, will render him willing to 
sacrifice for the general good v»?hat he deems to be promotive 
of his own happiness. And to deliver, as some political 
economists have seriously and philanthropically proposed, 
popular lectures from time to time on the importance to the 
general welfare, of every individual looking well before he 
marries to the length of his purse and the prospect he may 



114 THE PRINCIPLES OF 

have of obtaining a livelihood for himself and family, may 
be characterised as not merely useless, but absolutely ridicu- 
lous. 

Nothing of this kind, the reader will bear in mind, has 
been recommended in the present treatise. I say to no man 
" do not marry." My dependence for accomplishing the 
proposed object, viz. the letarding of the too rapid increase 
of population, rests on the simple operation on the minds of 
men of the moral causes which have been mentioned in the 
present chapter. Let individuals, and let governments, do 
every thing in their power to enlarge the desires of the great 
body of the people, and to promote among them the growth 
of habits of foresight. And if the object in view shall be, not 
compulsorily, but voluntarily, accomplished by these means, 
no class of persons will have reason to complain. 

It may here be proper to notice an objection which has been 
urged, and been urged with an air of much triumph, against 
the consistency of the recommendations which have just been 
made. While the poor man is told that he ought to cultivate 
as extensive a taste, so to speak, for enjoyment as possible, and 
ought not to be satisfied with consuming only a comparatively 
inconsiderable amount of the luxuries of life, — he is at the 
same time told, that he ought not to consume what he has in 
his power to consume, but to save a portion of it, and that the 
more he saves the better ; and this is asserted to be a contra- 
diction in terms. This objection is, however, founded on a 
very superficial view of the subject. It is surely quite possi- 
ble for an individual to have an enlarged desire for luxuries, 
and at the same time to be more solicitous than he was wont 
to be to have it in his power to consume them at a future 
period. Habits of foresight do not imply on his part a dispo- 
sition to be content with a diminished consumption, but 
simply that he has been led to prefer a different distribution of 
his consumption than heretofore ; — that he has become more 
anxious to secure to himself and family a continuance of their 



POLITICAL ECONOMY. 115 

present rate of enjoyment. So far, I may add, from there 
being any ground for the alleged inconsistency, it will gene- 
rally be found that when the desire for present enjoyment is 
extended, that for future, when compared with present 
enjoyment, will be also extended. 



CHAPTER VII. 

MEANS OP ENLARGING THE DESIRES OP MEN, AND OP INCULCATING 

UPON THEM HABITS OP FORESIGHT INFLUENCE OP MORAL CAUSES 

IN DETERMINING THE COMMAND OP THE COMMUNITY OVER THE 
NECESSARIES AND LUXURIES OP LIFE. 

Now what are the means of enlarging the desires of men ? 
And what is the most effectual mode of inculcating habits of 
foresight on the great mass of the community ? 

We may, in the first place, look to education, using this 
term in its most extensive meaning, for a satisfactory answer 
to these questions. This is sufficiently evident not to require 
me to enter into any details of illustration. Just in proportion 
as men are made acquainted with the properties of things, and 
their understandings become expanded, will they be apt to be 
dissatisfied with a contracted range of enjoyment. And habits 
of foresight will be the necessary result of the general diffu- 
sion of education, intellectual, moral, and religious. The 
intellectual man lives not only in the present, but likewise in 
the past and in the future, — and in the past, in so far as it is 
conceived to be an index of the future. He whose actions 
are continually guided by the consideration of duty, cannot 
but be much occupied in tracing their remoter effects. Who, 
likewise, will more probably be possessed of an habitual fore- 



lie THE PRINCIPLES OF 

siglit in the affairs of life, than the individual whose attention 
is much and systematically diverted from the contemplation 
of the fleeting present to that of the eternal future ? 

But, secondly, individuals and governments should do every 
thing in their power to promote the progress of improvement 
in the arts, and, what has been stated to be tantamount to such 
improvement, to eflcct as entire a removal as is practicable 
of the various restrictions upon man's liberty of applying his 
labour and capital as he may deem to be most conducive to 
his own interests, — restrictions which, notwithstanding the 
lights of political economy, are still in a greater or less degree 
existent in every country. A greater productiveness of labour 
will then ensue, and will operate advantageously, by its ten- 
dency to enlarge the desires of the community for enjoyment. 
This result will be brought about in the following manner. 
The first effect, as has already been very fully explained, — 
will be a corresponding increase in the amount of wealth pro- 
duced. Wages will then rise ; and a stimulus will, in conse- 
quence, be applied to population. As this becomes more 
numerous, and more numerous too than it would otherwise 
have been, the necessity will sooner occur of having recourse 
to inferior soils and to less advantageous circumstances in 
respect to cultivation ; and wages would hence gradually fall 
to their former level, ivere the habits of the community in rela- 
tion to mairiage to continue unchanged. But these habits 
would not continue unchanged. The great body of the peo- 
ple, having for a time become accustomed to the enjoyment 
of a greater amount than before of the conveniences and 
luxuries of life, will not readily relapse into their former con- 
dition. They will, rather than subject themselves to the risk 
of doing so, consent to the postponement of marriage for a short 
time ; and their condition generally will, accordingly, be some- 
what elevated. Every improvement in the arts has, therefore, a 
tendency to produce two distinct effects ; first, to increase the 
numbers of a people, and secondly, to enlarge their command, 



POLITICAL ECONOMY. 117 

on the average, over the various enjoyments which are the 
products of human labour. I may Ukewise observe, that these 
two effects do not keep pace with each other ; but while the 
one takes place in a greater degree, the other must necessarily 
do so in a less degree. 

It can scarcely be necessary to remark that, where improve- 
ments are continually making, the effect, unless counterbalanced 
by the action of other and opposing causes, will be d^ gradually 
augmenting rate of wages. Another remark, the correctness 
of which is not quite so obvious, but which will be perceived 
by the reader on a little reflexion to be true, is that, when 
population is actually increasing with great rapidity, or, in 
other words, when it is, comparatively speaking, unchecked, 
it will be much easier, by retarding the average period of 
marriage, to prevent its too rapid increase, than when that 
period is already late, and when, of course, the population is 
only slowly increasing. 

To the two modes which have been mentioned of improving 
the condition of a people may be added, in the third place, all the 
institutions and contrivances of various kinds, such, for exam- 
ple, as savings' banks and benefit societies, that are calculated to 
promote habits of foresight, and that are not, commonly and 
strictly speaking, comprehended among the means of educa- 
tion ; as also the abolition of all such institutions, and the 
repeal of all such laws, as tend to encourage habits of impro- 
vidence without any compensating advantage, — at least to as 
great an extent, and as speedily, as is consistent with humanity, 
and with a fidelity to the subsisting vested claims of the poor. 
And I may mention, in the fourth place, the expediency, 
with a view to the improvement of the general condition of a 
people, of extending to the poorer and less educated portion of 
them a direct influence on the operations of the government, 
as soon as they are sufficiently enlightened for such influence 
to be entrusted to them, with safety to their own and their coun- 
try's peimanent interests. Where a representative govern- 

16 



118 THE PRINCIPLES OF 

mcnt has been instituted, the extension of the right of suffrage 
will contribute much to elevate the general character of the 
citizens, by directing their thoughts to matters of a higher and 
more enduring importance than the petty concerns of their 
immediate neighbourhoods or of their every day life. Con- 
scious of his weight in the community of which he is a mem- 
ber, each voter will necessarily possess a certain self-respect, 
which will render him less disposed to aim at sensual gratifi- 
cation as the principal object for which he was brought into 
existence, and less disposed to take any step that is hkely to 
depress his condition in society. The very exercise, too, of 
the right of suffrage by any one will, from what has just been 
stated, obviously tend to qualify him more and more for the 
proper exercise of it. 

Here if the question be asked, — by what criterion shall we 
determine the safety of any proposed extension of the right of 
suffrage 1 I reply that the question, although having an inti- 
mate relation to the science of political economy, does not lie 
properly within its domain, and is therefore one to which I 
may, with propriety, decline giving an answer. It will be 
sufficient for me, at present, to make the now common-place 
remark, that the right of which I am speaking can be advan- 
tageously extended exactly in proportion as a community is a 
religious, moral, and inteUigent community ; and to remark 
also that a people who are so extravagant in their expectations 
of the benefits to be derived from mere political change, as to 
expect from it any sudden and extraordinary elevation in the 
condition of the labouring and poorer classes of society, or 
who conceive that the only reason why many are poor is that 
a few are rich, are but ill prepared for performing the func- 
tions of self-government. A people of this description will be 
very apt on coming to the possession of power in a state, espe- 
cially on coming into possession of it suddenly, to advance 
from change to change, and from revolution to revolution, until 
no government excepting one of the strongest and most des- 



POLITICAL ECONOMY. 119 

potic kind will be able to maintain itself amidst the universal 
disregard of every thing established, or be able to protect the 
community from being overwhelmed by the horrors of anarchy. 
The student of political economy who has advanced thus 
far in the present treatise cannot fail, it seems to me, to per- 
ceive the enlarged views which this science opens upon the 
condition and prospects of mankind. By the importance 
which it attaches to the influence of moral causes on the 
physical condition, so to speak, of society, it must at once 
assume a high rank in his estimation among the sciences ; and 
he will not hesitate to hail the general diffusion of its doctrines, 
as not the least important means of contributing to the ad- 
vancement of the best interests of his fellow-men. It must 
likewise be now apparent, — to repeat the language already 
used in the outset of this work, — " that no branch of human 
knowledge exhibits to us more beautiful illustrations of the 
consistency of all truth." What, indeed, can be more striking 
in this point of view, as well as more gratifying to the philan- 
thropist and the christian, than the fact, so unequivocally 
demonstrated by the political economist, that " there is no 
more efficient mode," to repeat again my own language, " of 
promoting the physical well-being of a people, than to difTuse 
among them, as extensively as possible, the blessings of reli- 
gion, of morals, and of education !" And I think that I shall 
hardly be contradicted by any of my readers who have care- 
fully read and understood the contents of the preceding pages, 
when I assert that the general diffusion of religion, of morals, 
and of education, would be decidedly the most efficient mode of 
ensuring to the community at large, as extensive a command, 
as is at all practicable, over the various necessaries and 
luxuries of life, — a proposition, of course, still more remark- 
able thgin the one just before mentioned. 



120 THE PRINCIPLES OF 



CHAPTER VIII. 

A.N INCREASE OF POPULATION NOT A CRITERION OF NATIONAL PROS- 
PERITY EMIGRATION FROM, AND IMMIGRATION INTO, A COUNTRY 

— IMPORTANCE OF CAPITAL AUGMENTING AT AN UNIFORM OR 
ACCELERATED RATE. 

It must be evident, from what precedes, that to assume the 
fact of an increase of the population of a country to be a 
certain criterion of its prosperity, as some are disposed to 
do, would be to commit an egregious errour. Where the 
capital of the country has not been increased in a correspond- 
ing ratio, or more than a corresponding ratio, the wages of 
labour must necessarily have fallen, and the condition of the 
mass of the community have become comparatively degraded. 

However desirable, in the ruder states of society, may be 
the acquisition of numbers, with a view to the common defence, 
even at such an expense as has just been mentioned, this is 
very far from being the case in a more advanced period of 
civilisation, and especially among the more civilised nations of 
our own age. Power depends now in a much greater degree 
on intelligence and wealth than on mere animal energy ; and 
that people, who permit themselves to approximate in their 
condition to the limits of a mere subsistence, are prepared 
most effectually for subjugation to the will of either a domestic 
or foreign master. 

Emigration is by many relied upon as an infaUible means 
of curing the evils of a redundancy of population. But it is 
quite obvious, from the theory which has been expounded, that 
no benefit will accrue to a country from the emigrating of a 
portion of its inhabitants, if the expenses they incur in doing 
so, together with the property they may take with them, shall 
exceed the amount of capital which would suffice to employ 



POLITICAL ECONOMY. 121 

and support them at home ; — excepting only the benefit to be 
derived from the remaining capital of the country being 
applied under somewhat more advantageous circumstances, 
because applied to the land under less disadvantageous cir- 
cumstances than it would otherwise have been. This benefit, 
too, would be experienced in only a slight degree, — with any 
probable amount of emigration, — on account of the difficulty 
of transferring capital from agriculture to other employments. 
And we may easily conceive the expenses of emigration, 
together with the capital removed by the emigrants, to be 
more than enough to counterbalance any supposable benefits 
to be conferred on their fellow-countrymen. 

If we, however, assume the contrary of this to take place, 
the benefit conferred will manifest itself in a general rise of 
wages. The very same effects precisely will then ensue as in 
the case of a rise of wages consequent upon an augmentation 
of capital ; and which effects, having been already sufficiently 
explained, I shall not repeat. 

It is not denied that instances may sometimes occur of evils 
resulting to a country from emigration, wholly independent of 
any immediate and corresponding diminution of its wealth. 
It may suffer a loss, and a very considerable loss, from the 
general emigration of its more intelligent, skilful, or industri- 
ous citizens, whose places can only be very slowly supplied. 
Of this nature, for example, were the consequences to France 
of the revocation, by Louis XIV., of the edict of Nantes. But 
measures of this character have fortunately but seldom been 
enacted, even by the most despotic and tyrannical govern- 
ments ; and, in an age of advancing intelligence, the possibility 
of their occurrence is scarcely to be admitted as in any 
manner modifying our conclusions on the subject of emigra- 
tion. 

With respect to immigration into a country, on the supposi- 
tion of the immigrants being possessed of superior intelligence, 
skill in any of the arts, or superior qualifications of any 



122 TUB PRINCirLKS OF 

description whatever, they will be a gain to their adopted 
country. If this supposition do not hold good, the advantages 
to be derived from them, (I am referring, as I have been all 
along doing in the present chapter, to the advantages exclusive 
of the increase of population, which increase, other circum- 
stances being the same, is unquestionably a national benefit) 
will depend, generally speaking, on the amount of capital 
which they may bring with them. If such capital be insuffi- 
cient for the employment of labour, to an equal extent with 
the labour which they have added to that already employed 
in the country, it is plain that the effect of the immigration in 
question will be to induce a lower rate of wages ; and this, 
however temporary its continuance may be on account of the 
diminished action of the principle of population, is of course 
to be regarded as a national evil. 

An exception to the conclusions just deduced is presented 
in the case of foreign labourers with little or no property, who, 
on arriving in such a country as the United States, do not 
enter into competition with the natives in the more thickly 
settled parts of it, but, proceeding to the borders of the cul- 
tivated territory, unite their efforts there with those of others 
who are engaged in extending the dominion of civilised man 
over the wilderness. In such circumstances it is quite pos- 
sible, as is well known, that their labour may add to, instead 
of subtracting from, the power of their neighbours to obtain 
the necessaries and luxuries of life, or, what is the same thing, 
may augment, rather than diminish, the rate of wages. 

Another exception to the conclusions which have been 
deduced in relation to the advantages or disadvantages result- 
ing to a country from immigration into it from foreign 
countries, arises where the immigrants consist in a greater 
proportion than common of able-bodied men. Even though 
they should be entirely destitute of property on their arrival, 
it is manifest that they may, quite possibly, more than com- 
pensate, by the greater proportional production which will 



POLITICAL ECONOMY. 123 

ensue, for the support which they must in the first instance 
derive from the capital of the country at the expense of the 
labourers already employed in it. 

It may be mentioned, that the loss to any country, thus 
resulting from the emigration of a disproportinate number of 
able-bodied men, is in every respect similar to the gain to be 
derived by the country to which they emigrate. 

And to avoid being misapprehended by any of my readers, 
it is proper for me to state distinctly, that I am far from 
denying that a greater amount of human happiness may, in 
almost every instance, have been produced by the emigration 
of a number of the inhabitants of one country to another. 
Even when the emigrants are wholly without property, the 
advantages which they will enjoy may more than counter- 
balance the inconveniences occasioned by them to the popu- 
lation generally of their adopted country. Nor do I mean to 
call in question the expediency, under certain regulations, of 
opening the door to emigrants from abroad, by extending to 
them the rights of citizenship, or conferring upon them privi- 
leges of a more contracted nature before they become 
citizens. Indeed, to discuss this topic at all would be to travel 
wholly beyond the limits of a treatise on political economy. 

The benefits derived by a nation from a rapid augmenta- 
tion of its capital have been fully explained. I will now 
mention further that it is in a high degree desirable, however 
rapidly capital may be augmenting, that the rate of its 
augmentation should not be a diminishing one. Suppose the 
capital of a district of country to have had ten per cent, 
added to its amount in a certain time. Now if we likewise 
suppose the habits of the people in respect to marriage to 
remain the same, wages will have remained unaltered, and 
the population will have augmented by one-tenth. But if, in 
the next equal period of time, the capital of the district in 
question shall not have become greater in the same propor- 
tion, — if it shall have augmented by one-ninth only, instead of 



124 THE PRINCIPLES OP 

one-tentli, — it is plain that population cannot augment as fast 
as it did before, unless we suppose a deterioration of the con- 
dition and habits of the people ; and it must also be plain, 
that the moral appliances requisite to prevent such deteriora- 
tion, will have to become continually more and more efficient, 
according as the rate of the augmentation of capital is dimin- 
ished. Now as the habits of a community in respect to 
marriage are only slowly, and with difficulty, alterable, it 
follows, that this rate should be rendered, if possible, an 
increasing, or at least an uniform one. The evils, indeed, 
which are consequent upon a diminishing rate of the augmen- 
tation of capital may be such as to be uncompensated for by 
the beneficial effects of a comparatively large augmentation of 
it in a given period of time ; and it would be far better to 
sacrifice something of this, if, by so doing, that rate could be 
rendered an uniform, or more than an uniform rate. 



CHAPTER IX. 

EFFECTS OF CHEAP OR DEAR FOOD ON THE NUMBERS AND CONDI- 
TION OF A PEOPLE AND EFFECTS, ON THEIR NUMBERS, OF AN 

EXTRAORDINARY MORTALITY, OF IMPROVEMENTS IN MEDICINE, 
AND OF THE MONASTIC INSTITUTIONS. 

It has been before stated that a greater degree of industry, 
on the part of the labourers of a country generally, is equiva- 
lent in its effects to those resulting from a greater productive- 
ness of labour. That in some of the most civilised nations no 
improvement of the kind of any moment is to be expected, or 
even desired, will be apparent, if we bear in mind the number 
of hours in the day during which their operatives are already 
kept employed. There are other nations, however, in which 



POLITICAL ECONOMY. 125 

the state of things in this respect is very different. Where the 
necessary wants of men are comparatively few, and where 
education has not exerted its power of creating in them new 
desires, they will not readily forego \hQ pleasures of indolence. 
For illustrations of this position, we may look at the habits in 
relation to industry of the uncultivated tribes of the more tem- 
perate climates of the earth, and especially of those tribes 
which dwell in the regions of perpetual summer. These 
scarcely need either shelter or clothing, and are satisfied with 
a scanty portion only of food: their enjoyments, other than what 
may be obtained gratuitously from the hand of nature, are 
exceedingly limited ; and they, accordingly, are seldom 
excited to any extraordinary exertions of industry. 

In every country too, where the necessaries of life are 
cheap, and the luxuries of life dear, the motive to industry, 
(all other circumstances, of course, being supposed to be the 
same) will be very considerably less with the mass of the 
population, than where luxuries are cheap and necessaries 
dear; and the former state of things will be found to be 
decidedly the preferable one of the two. As an illustration 
of this position, let us assume that, in a certain country, the 
labourer can, by working nine hours in the day, obtain what 
constitute to him the necessaries of life, and that he can 
procure a certain amount of luxuries by working one hour in 
the day more ; and let us also assume that, in some other 
country, the case is exactly reversed, — that the same amount 
of necessaries are to be had by means of one hours work, 
and the same luxuries by means of nine hours' work. The 
reader cannot fail to perceive, without any argument on my 
part, how much greater probability there is of the indolence, 
— I may say the natural indolence, — of the labourer, getting 
the better of his desire for the enjoyment of luxuries, in the 
latter case than in the former. 

The introduction of the potato into Ireland, as the principal 
article of food, has no doubt had a tendency, as every other 

17 



1 20 THE PRINCIPLES OP 

improvement in the arts of life would have had, to augment 
the population of that country, and to raise the wages of 
labour. That the former of these two effects has actually- 
occurred there, is known to every one : but that the wages 
of labour continue to be extremely loio is equally well known. 
What, then, have been the causes which have prevented their 
rise 1 It would be irrelevant to undertake to answer this 
question fully ; and I shall merely remark, that one of those 
causes has, very probably, been the cheap food of the people, 
— cheap when compared with the prices of what are esteemed 
by them to be luxuries, — rendering them less disposed than 
they would otherwise be to obtain them. On account of 
this contraction of their desires for luxuries, while the industry 
of the people may not have been impaired to the same extent 
as it would have been in a warmer and more relaxing cli- 
mate, the effect, in accordance with the theory of population 
which has been expounded in the present book, has been an 
extraordinary multiplication of the numbers of the people ; 
and that amount of labour, which, had such multiplication not 
taken place, would have sufficed to procure for the workman 
a certain portion of the luxuries as well as necessaries of life, 
is now scarcely adequate to supply him with what is abso- 
lutely necessary to enable him to exist. 

Among the apparent anomalies which admit of an easy 
explication, when the theory of population is once under- 
stood, is the greater prosperity often exhibited by a compara- 
tively barren country than by one blessed with very superior 
advantages of situation and soil. This ceases to be a mystery 
which is only to be wondered at, as soon as we are prepared 
to acknowledge the immense influence of moral causes in 
determining the command of the mass of a community over 
the various enjoyments, material as well as immaterial, of 
life. 

It is now also easy to understand the more remote effects, 
on the numbers of a people, of an extraordinary mortality, or 



POLITICAL ECONOMY. 127 

of an increased rate of mortality. The first effect will, plainly, 
be to ausment the wa^es of labour ; the whole amount of 
wages will be distributed among a less number of persons. 
But even when these specific wages are consumed, it will still 
be true that the rate of wages will be higher than they were 
prior to the supposed mortality ; for the labour of the com- 
munity will now be more productive than heretofore, it being 
applied under less disadvantageous circumstances. This 
state of things, however, will not continue. The principle of 
population will act with an increased energy, and wages will 
in consequence fall ; but they will not fall to their former level 
precisely, on account of the enlarged desires of the people for 
enjoyments, arising from their consumption for a time of the 
various products of labour in greater quantity than before. 
In short, every thing will take place in the same manner as I 
have described in the perfectly analogous case, of a rise of 
wages resulting from any extraordinary augmentation in the 
capital of a country. 

The instance of East Prussia, in the beginning of the last 
century, has already been adduced, as illustrative of the 
energy with which the principle of population will act, when 
disease, by thinning the ranks of a people, has raised the 
wages of labour. I may here observe that the same instance, 
as also many others of a similar kind occurring in other parts 
of the world, have been frequently referred to as affording 
evidence to establish the propositions, — that disease, war, and 
every other supposable positive check to population, are in 
reality no checks at all, unless they act so extensively as to 
render it impossible for the whole power of population, when 
brought into activity, to restore the numbers of a people, — 
and that most of the countries of Europe are now quite as 
populous as they would have been if, instead of being fre- 
quently engaged in bloody wars with each other, they had 
maintained among themselves for centuries the most peaceable 
relations. In proof also of these positions, the very great 



128 THE I'RINCirLES OF 

increase of the population both of Great Britain and of 
France, during the wars of the French Revolution, has been 
cited. But surely this is pushing the consequences of the 
theory of population too far, or rather mistaking the proper 
consequences of that theory. Even though we should sup- 
pose no interval of time to occur between the death of an 
individual and the supplying of his place by the birth of 
another individual, — it must be manifest that the quantity of 
wealth produced will not be as great as before. Many years 
mast elapse before the infant just born will be able to perform 
the work of the deceased labourer. But again, more persons 
must be born than have died, in order that they shall be 
equally numei'ous with the latter when they shall have arrived 
at the same age. Hence, while a diminished production is 
taking place, there wull be also an increased consumption ; 
and wealth, and therefore population, will not augment as 
rapidly as they would otherwise do. This, how^ever, is not 
all. In every war, at least every war which might have been 
avoided, there is a great unproductive consumption, that is a 
diminution of capital, or a diminution, under the most favour- 
able circumstances, of the rate at which capital is increas- 
ing; and this implies, as has been shewn, a diminished 
population. 

Improvements in medicine, which protract the lives of the 
existing generation of men, produce effects, it is evident, 
exactly the reverse of those resulting from wars or any of the 
other causes of an extraordinary mortality. The number of 
marriages and births will be lessened, but not to the same 
extent as the number of lives preserved. 

The theory of population points out the true mode in which 
the numbers of mankind were affected by the monastic insti- 
tutions of Europe, and of the other quarters of the world. 
After what has been stated, the reader cannot fail to perceive 
that the celibacy of the monks had no effect whatever on those 
numbers. By omitting to marry, they only made room for a 



I'OLItlCAL ECONOMY. 129 

greater number of marriages among the community at large. 
But in so far as they contributed, by their mode of life, to a 
diminished production of wealth, the effect in question will, 
without doubt, have also been produced ; since, other circum- 
stances being the same, population and wealth always aug- 
ment together. In this respect, however, the case of the 
monks is not a peculiar one. Whether any individual of the 
community contributes, or does not contribute, to the progress 
of national wealth, depends of course on the amount of wealth 
produced by him, when compared with what he consumes 
unproductively. Were the monks, then, productive labourers ? 
To what extent was their labour productive 1 And what was 
the comparative amount of their consumption? According 
to the answers which may be given to these questions, will 
they be pronounced to have retarded, or accelerated, the pro- 
gress of population. It is obvious, too, that those answers will 
differ according to the estimate which we may form of the 
utility, or inutility, of the services rendered by them to their 
fellow-men. 

Many more illustrations of the action of the principle of 
population might here be given. Those already adduced will, 
however, suffice for the present ; and others will occur as we 
proceed, when we shall have first discussed some one or two 
topics not yet treated of, or only touched upon, to which they 
have relation. 



1.30 THE PKIKCirLES OF 



BOOK THIRD. 



THE THEORIES OF MONEY, AND OF BANKING. 



CHAPTER I. 

ON THE COMPARATIVE VALUE OF GOLD AND SILVER MONEY, IN DIF- 
FERENT COUNTRIES, AND AT DIFFERENT TIMES IN THE SAME 
COUNTRY. 

I SHALL now resume the consideration of the subject of 
money, — a subject, not only of great practical importance, 
but one likewise concerning which there are as many errone- 
ous notions prevalent, among even the more thinking portion 
of the community, as perhaps concerning any other in the 
whole range of pohtical economy. This science, too, presents 
for discussion scarcely any subject, of much moment, which 
does not require, in order to be thoroughly understood, that 
correct opinions in relation to money should be first enter- 
tained. 

And in what is to follow, I shall pursue the method adopted 
in the preceding part of this work, of supposing among a mul- 
titude of changes, all equally liable to take place, only a single 
one in fact to occur, — and of tracing the various other changes 
which must then necessarily ensue. By thus examining the 
effects produced by the separate action of the different causes 



POLITICAL ECONOMY. 131 

of change, we shall be enabled afterwards to estimate cor- 
rectly the effects that any number of them, acting conjointly, 
are calculated to produce. 

Let the following suppositions be made ; — that the circulat- 
ing medium, throughout the world, consists wholly of the 
precious metals, gold and silver; that the supply of this 
medium, as well as of all other commodities, in relation to the 
demand existing for them, is such as to render the price of 
every thing the same in every country ; and also, that all 
things, including money, can be transported from place to 
place without any expense whatever. On these suppositions 
which, as I proceed, will be varied, and rendered more con- 
formable to the real state of the facts, let us inquire what the 
consequences will be if the supply of money become at any 
time greater, in some one place or country, than it has hitherto 
been. 

The first effect will, plainly, be a local rise of prices. A 
motive will thus be offered for importing commodities, other than 
money, from other parts of the world, and paying for them 
in money, — and for sending money abroad, rather than those 
other commodities which were before exported in exchange 
for the usual imports. This interchange will, of course, con- 
tinue, until, by increasing at home the supply of commodities 
other than money, and diminishing that of gold and silver, and 
by diminishing the supply abroad of commodities in general, 
and increasing that of gold and silver, the prices of things 
shall again become every where the same. As, however, the 
supply of money in the market of the world will, obviously, 
have become greater than it was before, prices will every 
where have become somewhat higher; or, which is the same 
thing, the value of the precious metals will have fallen. 

Here the question presents itself: — will this state of things 
be a lasting one ? It will not ; for the capital applied to the 
producing of gold and silver will no longer yield the usual 
profits. Less capital will, in consequence, be applied to the 



132 THE PRINCIPLES OP 

working of the mines ; the supply of those metals will not be 
sufiicicntly great to compensate for the consumption to which 
the portion of them in use as money, or for other purposes, is 
subjected ; and their value must again rise, and prices fall. 
When these shall have fallen to their former level, it is 
manifest that the motive for employing a less amount of 
capital in mining will cease to exist, and every thing will 
return to the state in which it was before the supposed 
augmentation of the supply of money. 

In shewing, as I have done, the effect resulting from an 
increase of the money which circulates to be, first a local, 
and next a general rise of prices, and, last of all, a complete 
return to the state of things in respect to money and prices 
originally existing, I have said nothing concerning the length 
of the period during which' the whole series of changes is per- 
formed. At present, what I wish my readers particularly to 
note is the result that is ultimately produced. 

Effects opposite to those just mentioned must necessarily 
ensue, when the supply of money in any country is supposed 
to have diminished, instead of having increased. What those 
opposite effects will be, the reader can easily trace for him- 
self. 

Whatever deviations, then, may occur, either in excess or 
deficiency, from the ordinary rate of supply of the precious 
metalsj the consequent rise or fall of prices can only be tempo- 
rary ; and the average value of money will now, it is plain, be 
determined, like that of every other commodity, by the cost 
of production. 

Hence, I may remark, the comparative values of gold and 
silver will be determined by the cost of producing them 
respectively. While, too, it is only because the cost of pro- 
duction, in reference to both these metals, has been diminished 
since the discovery of America, that their value is now much 
less than it was before that event ; so it is only because the 
cost of producing gold is about sixteen times as much as that 



POLITICAI, KCONOMi'. 133 

of producing silver, that the former is sixteen times as valu- 
able as the latter. 

As money is, indeed, only that commodity w^hich is most 
frequently exchanged for every other, the determination of its 
value by the cost of producing it needed not to have been 
specially deduced. I might have safely taken for granted that 
none of my readers would hesitate to apply to it the estab- 
lished principles concerning the exchangeable values of 
commodities in general. The reason why I have not done 
this has been, simply, that I might the more strongly inculcate 
a point of so much importance, as the proposition in question 
will be perceived in the sequel truly to be. 

The conclusions which I have arrived at in the present 
chapter have been founded on a number of suppositions ; one 
of which is that money is synonymous with gold and silver. 
Let us inquire whether those conclusions will have to be in 
any manner modified, if the supposition just stated be not 
admitted ; and that it cannot be admitted, consistently with 
the actual condition of things, is a matter of notoriety. 

In the first place, let money consist, not of gold and silver 
merely, but of gold and silver coin, that is of pieces of 
those metals having certain marks stamped upon them, 
to certify that they are of given weight and fineness. By 
whom, or by whose authority, the money is coined, would be of 
no more importance, for our present purpose, than is its form, 
or the particular manner in which it is divided and subdivided, 
did not governments (who have every where undertaken to 
be the exclusive coiners of money) sometimes consent to coin 
gold and silver gratuitously, — exchanging for bullion an equal 
quantity of specie ; — a measure which I need not say would 
never be adopted by any individual, or association of indivi- 
duals less numerous than the nation of which they are mem- 
bers. When the business of coining money is thus performed 
by government gratuitously, or, speaking more correctly, at 
the national expense, it is evident that, in the case of an 

18 



134 THE PRINCIPLES OF 

increased supply of money occurring, there is no reason why 
specie, rather than bullion, should be sent out of the country 
to pay for the extraordinary amount of importation, which I 
have shewn would necessarily take place, excepting that the 
former has impressed upon it a certificate of its weight and 
fineness, on which a great reliance can be put. This circum- 
stance, however, will cause it to be sent abroad, while the 
bullion is retained at home ; and the series of consequences 
ensuing will be just such as were deduced on the supposition 
of there being no difference whatever between specie and 
bullion. 

But if the bullion in the country be not exported, its price, 
equally with that of every other commodity, money excepted, 
will be enhanced ; which is the same thing as to say, that a 
given quantity of gold or silver is worth more when uncoined 
than when it is coined. The coin will therefore not only be 
exported from the country, but a portion of it will be melted 
down and converted into bullion. It is manifest that these 
two processes will be going on, and will cease, simultane- 
ously; so that to suppose the money of the world to be 
augmented in any degree, will imply that its whole stock of 
gold and silver is augmented in the very same degree. Hence 
also, the same conclusions may be drawn, as when the circu- 
lating medium was supposed to consist of the precious metals, 
without reference to their being coined. 



FOUnCAI. ECONOMY. 135 



CHAPTER II. 



THE SAME SUBJECT CONTINUED. 



If a government, instead of exchanging coined money for 
an equal quantity of gold and silver in the form of bullion, 
should make a charge for coining, — a charge which is deno- 
minated technically by the term seignorage, — the only 
diiference in the series of changes which I have traced above 
will be, that the process of melting down the coin and con- 
verting it into bullion, preparatory to its being used in the 
arts, will not commence until the supposed depreciation of 
money shall have proceeded so far as to reduce its value to 
that of an equal quantity of bullion. But whether any portion 
of the coin be converted into bulhon, or not, no extraordinary 
increase in the supply of it can take place without being 
followed by a partial exportation of it to foreign countries ; 
or, in other words, by the diffusing of the extraordinary supply 
throughout the market of the world ; and consequently, by the 
diminished production of gold and silver, until the former 
state of things, in respect to the value of money, be entirely 
restored. 

When money was regarded as consisting of uncoined gold 
and silver, and after the consequences had been deduced of a 
supposed augmented supply of it, I made the obvious remark 
that precisely the contrary consequences would flow from a 
diminished supply of it. It must be now equally obvious that 
exactly a similar remark may be made in reference to such a 
supposition, whatever may be the relation which money or 
specie bears to the precious metals when these have not been 
coined. And, as before, I will not enumerate those conse- 



130 THE FRINCIPLB8 OF 

quenccs, because they cannot fail to be suggested to the mind 
of the reader without my doing so. 

Coined money will, on the average, have an advantage in 
exchange over bullion, exactly in proportion to the confidence 
which is generally reposed in the accuracy of what the stamp 
upon it is intended to certify, to wit, that it has a certain 
weight, and is alloyed in a certain fixed proportion with 
baser metal. This certificate, by enabling the coin to pass 
current without being assayed and weighed, dispenses with a 
certain amount of inconvenience and labour, on the part of 
him who receives it in payment for other commodities. It 
will, therefore, bo preferred in the market to bullion, other 
circumstances being the same, that is, it will have a greater 
exchangeable value ; and were the business of coining left free 
to every one who chose to engage in it, and were it then 
practicable (which would, evidently, not be the case) so to 
regulate it as to secure the entire confidence of the commu- 
nity in its being always faithfully performed, the excess of the 
exchangeable value of money over that of bullion would be 
determined by the cost or expense of coinage. 

And it would not be in the power of government, by charg- 
ing a higher seignorage than is sufficient to compensate the 
inconvenience and trouble above mentioned, to add any thing 
to the value of the coin. In order the better to perceive this 
impossibility, let us look at a particular case. Suppose ten 
dollars to be the value of an eagle ; comprising in that value, 
not only the value of the gold contained in the eagle, but also 
the compensation in question. Now let the government not 
rest satisfied with receiving only ten dollars for the eagle, 
when it is issued from its mint, but endeavour to obtain an 
additional value for it, by means of an augmented seignorage. 
Let it, for instance, declare the eagle to be worth eleven, 
instead of ten dollars. What will be the consequence ? Will 
the piece of money, whose nominal value has thus been arbi- 



POLITICAL ECONOMY. 137 

trarily raised a dollar, have its real value in exchange raised 
to the same extent 1 Certainly not. No one will be willing to 
give any more for it than is sufficient to procure in the market 
an equal quantity of gold bullion, together with the cost or 
expense of assaying and weighing. 

Hence it is plain that the possessors of the precious metals 
will not have a sufficient inducement to bring them to the mint 
of government to be coined; and the coining of money would 
be altogether out of the question, excepting where the govern- 
ment is itself a producer of gold or silver, — or where it exacts 
a certain portion of the produce of the mines from those whom 
it permits to work them, — or where it obtains them in pay- 
ment of taxes. 

In as much, Ukewise, as a higher seignorage than is suffi- 
cient to repay the expense of coinage will have no effect on 
the real prices of things, or, in other words, on the quantity of 
gold or silver for which they will exchange, we may con- 
clude that such a measure will have no tendency either to 
accelerate, or retard, that exportation or importation of money 
in payment for commodities, imported or exported, as the case 
may be, by means of which the equable diffusion of the circu- 
lating medium of the world is effected. 

The supply of money has been supposed, under certain cir- 
cumstances, to vary. Let us now suppose the demand for 
money to become in some one country either greater or less, 
while the supply of it continues unaltered ; and, first, let the 
demand for it be diminished. This supposition, the reader 
will perceive, is equivalent to that of an augmented supply ; 
for it impHes a greater willingness than before, on the part of 
the holders of money, to dispose of it in exchange for other 
commodities. It is true that the actual quantity of money 
will not have been increased by the occurrence of a less 
demand for it than before; but its efficiency, as a medium of 
exchange, will have increased exactly in proportion as its 
circulation is quickened. When, for example, the rapidity of 



138 TUE phinciples of 

circulation is doubled, an hundred dollars will perform the 
same number of exchanges which two hundred did before, 
and the very same consequences must follow as if the circu- 
lating medium had been doubled in quantity ; and so too, in 
whatever other ratio that rapidity may be supposed to have 
become augmented. Should the demand for money be greater, 
instead of less than it was, it will, of course, circulate more 
slowly, and the series of consequences ensuing will, manifestly, 
be the same as results from a diminution in the supply of 
money. 

If we suppose the supply or demand in respect to any 
commodity, different from money, to vary, every one knows 
that its price will suffer alteration. There may be either a 
rise or fall of price. When a rise takes place, an importation 
from abroad of the commodity will follow, which will be paid 
for in money (all other circumstances, including the price of 
every thing else, remaining unchanged) ; and the importation 
of it, and payment for it, will go on together, until by dimin- 
ishing the supply of it, and increasing that of money at 
home, and by increasing the supply of it, and diminishing 
that of money abroad, its price will be again every where the 
same. The like equalisation of prices throughout the world, it 
can be shewn, will take place, in case they should have /aZ/en 
below their usual rate. 

Whether, then, the relations of supply and demand, which 
ordinarily subsist in any country, are disturbed by an alteration 
in the supply of, or demand for money, or whether those rela- 
tions are disturbed by an alteration in the supply of or demand 
for any thing else, such disturbance will more or less rapidly 
cease ; and an entire equality in the prices of all things will 
be every where eventually re-estabUshed. Since, however, 
such disturbances will be continually occurring, this equality 
of prices will seldom, in fact, be found to subsist, and prices, 
in the various regions of the globe, will be continually oscil- 
lating, within certain limits, about the equated rates, if I may 



POLITICAL ECONOMY. 139 

use this expression, — having all the while a tendency to 
become equal to them. 

We have now arrived at the conclusion, that so long as the 
money of the world consists exclusively of gold and silver, 
whether in bullion or coined, and whether any seignorage be 
charged or not by the government for coining it, — and so 
long, too, as we take no account of the cost of transporta- 
tion, — the prices of things will every where tend to an equality. 
Those prices, moreover, will have a tendency to be at such 
a rate as just to repay the cost of production, — on the one 
hand, to the producer of the precious metals, — and, on the 
other, to the producers of the diflferent commodities for which 
they are exchanged. In other words, just so much of any 
commodity will, on the average, be sold for a given sum of 
money, as is equal to it in cost. 



CHAPTER III. 



THE SAME SUBJECT CONTINUED. 



Let us now remove the supposition of the transportation of 
commodities being effected without expense. It is evident 
that their prices will then not tend to a perfect equality 
throughout the various countries of the world, — and that the 
price of any article may differ permanently in one country 
from what it is in another, by the expense of transporting 
from one to the other the article concerned, as well as the 
money for which it is exchanged. The reader will also, on a 
moment's reflection, perceive that the expense of transporta- 
tion, using this term most comprehensively, is the only reason 
why the prices of things would not be, in reality, every where 



140 THE PRINCIPLES OF 

tlio same, — so long, at least, as the commerce between nations 
is entirely free from all legislative restrictions. 

I may here mention, that there is nothing in the deviation 
of the prices of things from an entire and universal equality, 
induced by the expense of transportation, to prevent those 
prices from being determined, in the several countries of the 
world, by the cost of producing the precious metals, in the 
manner heretofore explained. 

In respect to copper money, to the extent in which it per- 
forms the functions which, if it did not exist, would be 
performed by gold or silver money, will the effects of its use 
be manifestly equivalent to those resulting from the circula- 
tion it thus displaces. It is scarcely necessary for me to 
remark, that the existence of such a circulation as that now 
adverted to can in no wise modify the conclusions already 
arrived at in respect to the general equalisation of prices, and 
to their determination in every country by the cost of produc- 
tion, both in respect to money and the commodities purchased 
by it. And by the general equalisation of prices, I, of course, 
now mean their equalisation within the limits prescribed by the 
expense of transportation. 

Before inquiring into the effects of the introduction of paper 
money, I will make a remark or two having relation to the 
matters treated in the preceding chapter, chiefly for the pur- 
pose of guarding against the possibility of my meaning being 
misapprehended. 

I remark, in the first place, that the argument which has 
been adduced to prove the impossibility of augmenting the 
exchangeable value of the money of a country by means of 
the exacting, on the part of the government, of a higher seign- 
orage than is adequate to compensate the toil and trouble of 
assaying and weighing, is equally applicable to every attempt 
to add to the exchangeable value of the money put into circu- 
lation, by assigning to it a greater value nominally, or, what 



POLITICAL ECONOMY. 141 

amounts to the same thing, by causing money to be coined of 
the same nominal value as before, but containing a diminished 
amount of the precious metals. 

In the next place, it may be proper for me to meet an objec- 
tion which may perhaps be made to the position I have 
assumed to be an obvious one, — that a diminished demand for 
money implies an augmented rapidity in the rate of its circu- 
lation, and, on the other hand, that an augmented demand 
for it implies a diminished rate of circulation. Some persons 
might be disposed to maintain the opposite of this to be true. 
They might, and it must be acknowledged with some appear- 
ance of plausibility, argue, for example, that a man never 
makes a greater demand for money than when he is anxious 
to obtain it in order to fulfil the pecuniary engagements into 
which he may have entered, and when he is, consequently, the 
least disposed to retain it in his possession after he has 
obtained it ; so that it is precisely, they might go on to say, 
when the demand for money is the greatest, that it circulates 
most rapidly. So too, the circulation of it takes place at the 
slowest rate, precisely when the demand for it is the least. 
To all this, however, I reply, that if we take this anxiety of the 
members of a community to obtain money to be evidence of 
their demand for it being great, we ought, consistently, to 
regard their anxiety to part with it in payment of their debts, 
as an evidence of their demand for it being small ; and as 
these two anxieties, from the nature of the case, are equal to 
one anotlier, we will be left without any means whatever of 
determining the extent of the demand actually existing at the 
time for money. But I have employed the term demand, in 
reference to money, in a sense ditferent from that which has 
just been considered, and in one perfectly analogous to its 
ordinary acceptation when we speak of commodities other 
than money. When the demand for broadcloth, for instance, 
is said to be greater than it has hitherto been, a greater desire 
than before must necessarily exist for the possession of broad- 

19 



142 THE PRINCIPLES OF 

cloth, to be used or consumed, sooner or later, by its owner. 
It is in consequence of the existence of such a demand as this, 
that the merchant who deals in the article will be more desirous 
than he has heretofore been to purchase it, as well as to sell it 
to his customers, and that he will thus add his demand to that 
already existing. In like manner, the demand for money is 
correctly said to have become greater, when people generally 
are more disposed than they previously were to retain it in 
their possession for future use. Here again the analogy is 
complete, in this respect, — that, on account of the prevailing 
desire to keep more money in possession or reserve for future 
use, the merchants will likewise make a greater demand for 
for it by declining to supply themselves as extensively as they 
did before, with other commodities. 

Another remark which I have to make is, that when in the 
preceding chapter I spoke of prices being dependent, in the 
several countries of the world, on the cost of producing the 
precious metals, I had reference, as well to the countries 
whose stock of those metals was procured from abroad, as to 
countries where they were extracted from the earth by mining, 
or by means of any other process. When the source from 
which a commodity is supplied to us is a foreign one, every 
dollar's value imported implies the exportation of a certain 
value to pay for it. Now if the exports be the product of the 
capital and labour of the country whence they are sent abroad, 
the imports may surely be regarded in the same light. The 
former are, in fact, only instruments for procuring the latter ; 
and the labour and capital applied to the producing of the 
former are truly applied to the first stages in the production of 
the latter, — the remaining stages of their production being the 
act of transporting both exports and imports to their respective 
places of destination. Hence it is that we may speak, with 
entire propriety, of the cost to us of producing the precious 
metals, even though not a particle of them should be of 
domestic origin. 



1H)LITICAL ECONOair. 143 



CHAPTER IV. 

EFFECTS OF THE USE OF PAPER MONEY. 

To simplify as much as possible the subject of paper 
money, let us, at first, suppose all money of the kind to have 
the well known form of bank notes. Also for the sake of 
simpHcation, let us suppose a particular case ; — that the 
metallic money in circulation in some one country, or region 
of country, — say the state of Pennsylvania, — is equivalent to a 
specie circulation of a million of dollars, and that no paper 
money has as yet been introduced. In this condition of things, 
banks are estabhshed, which add to the circulating medium 
one hundred thousand dollars in notes representing specie, 
that is payable by the issuers to the holders of them in specie 
on demand. And, again for the sake of simphcation, let it be 
supposed that this addition to the money previously in circula- 
tion is uniformly diffused over the state ; so that every man 
having before ^100 shall come to possess $110, and that 
every man having $1000 shall possess $1100, — and so on in 
like proportion. There must, evidently, be a general rise of 
prices ; just as if the augmentation of the circulating medium 
had consisted of specie, instead of paper. What before sold 
for ten dollars will be sold for eleven. An extraordinary 
importation of commodities, other than money, and exporta- 
tion of money, in payment for these, will ensue. The 
$100,000, added to the circulation of the state of Pennsylva- 
nia, will, in this manner, become an addition to the circulating 
medium of the world, and will be so diffused among the 
different nations composing it, as to cause an equal rise of 
prices in all of them ; — or, in other words, the increase of the 
money of each country will be proportional to the quantity of 
money which it previously possessed. As before explained, in 



144 THE PRINCIPLES OF 

reference to tJie case when nothing but specie was supposed 
to circulate, — there will now too be a diminished production 
of the precious metals, until prices fall to their former level, 
and are again just such as to repay the cost of production to 
all the parties concerned. 

I have said, until prices fall to their former level. Here 
there is a slight inaccuracy. While, if the addition which 
was made to the circulating medium had consisted of specie, 
the quantity of gold and silver required to supply the wear of 
the coin, as well as for other purposes, would, after prices 
had fallen to their original rates, be what it was before, — 
such will not be the case when the circulation is augmented 
by an issue of paper money. Indeed, were the prices of things 
then to subside to their former level, it is plain that, although the 
former amount of gold and silver made use of in the arts will 
be again made use of in them, the amount required in repair- 
ing the wear of the coin will be less than before, on account 
of the diminution of the quantity of the coin in circulation. 
On the whole, therefore, those metals will not need to be pro- 
duced in as great abundance as previous to the issue of the 
paper which caused the temporary rise of prices. Hence 
too, they could not be produced as abundantly without 
depreciating in value, so as not to yield the producers of them 
the ordinary profits on the capital employed ; and they will, 
accordingly, not be produced as abundantly. A transfer of 
capital and labour will take place, to a certain extent, from 
the business of mining to other employments ; the worst mines 
will be neglected ; and the capital which will remain invested 
in mining will be invested under more advantageous circum- 
stances than the capital was heretofore invested. Now that 
cost of producing any commodity which determines its 
exchangeable value being always the cost of producing it 
under the most disadvantageous circumstances in which it is 
actually produced, — it will, in the instance under considera- 
tion, have been lessened. Money will, consequently, have 



POLITICAL ECONOMY. 145 

become less valuable; and prices will, of course, have 
ultimately risen in a certain degree, though in comparatively 
a very slight degree. 

The modification just stated, of a proposition previously 
deduced, may possibly seem to some of my readers to be so 
very inconsiderable as to render it scarcely worthy of the 
notice I have bestowed upon it ; and my motive for touching 
here upon it at all has been simply a desire to exhibit my 
views in as unobjectionable a form as it is in my power to 
do. 

But to proceed : it is obvious that the preceding deduction 
of the effects resulting from the supposed issue of $100,000 in 
paper money will hold good, to whatever extent the issue of 
paper money may have taken place, so long as there is specie 
procurable for exportation ; and specie will be always pro- 
curable for exportation, so long as the banks fulfil their 
promise of paying it for their notes on demand. What will 
happen if the issue of paper money should go beyond the 
amount which has been mentioned, will be a subject of future 
inquiry. 

The manner in which the foregoing conclusions must be 
modified, on account of the expense of the transportation of 
commodities, is the same, evidently, as was explained in the 
analogous case of the supply of money having been augmented 
by an addition to it of specie. I will here only say farther, 
what is sufficiently manifest, that the inequality which, after 
the supply of money has been augmented in some one country, 
may continue to subsist between the price of a commodity 
there and in any other country, will depend, other cir- 
cumstances being the same, on the distance which those 
countries are apart from each other; — and consequently, that 
a given augmentation of the circulating medium will be 
diffused somewhat more densely, so to speak, in those states or 
countries which lie contiguous to that where it has occurred, 
than in those situated more remote. 



140 THE PBinCIFLES OP 

Had the increase of the circulating medium of Pennsylvania 
not been equally diffused throughout the state, as was assumed 
to bo the case, it is quite evident tiiat tiie soundness of the 
conclusions, to which we have been led, would not be in the 
least affected. The only difference in the steps of our reason- 
ing would be, that prices will, in the first instance, rise 
unequally in different places in the state ; — all which places 
may then be regarded in the same light as the whole state 
was before regarded, viz. as so many distinct sources whence 
paper money has been issued, and whence money is exported 
in exchange for other commodities ; thus equalising prices 
(within tiie limits, of course, prescribed by the expense of 
transportation) throughout the state of Pennsylvania, as well 
as every where else. 

When paper money is issued in any one part of a country, 
it is very possible that its credit may be sufficiently good to 
occasion it to be exported, instead of specie, to neighbouring, 
or even to more distant parts, in exchange for commodities. 
It is scarcely necessary for me to remark that this case, hke- 
wise, will furnish no exception to the correctness of the results 
to which we have arrived. The paper money, in this manner 
made to constitute a portion of the circulation in other parts 
of the country, will have the same effect upon prices, and will 
induce the same series of changes, as if it had been issued 
where it circulates. 

Again, in what goes before, the banks of Pennsylvania 
were supposed to add $100,000 in paper to a specie circu- 
lation amounting to a million of dollars. I may observe that 
the possibility of their doing so will depend upon their first 
procuring from abroad the specie which they will retain in 
their vaults, and on which their banking operations are to be 
based. If they have to take this specie from that which at 
the time is actually circulating, they will have to issue their 
notes to an amount as much exceeding the 8100,000, by which 
the circulating medium is to be increased, as is equal to that 



POLITICAL ECONOMY. 



147 



of the specie thus taken. If $50,000 be deposited in the 
vaults of the banks, they must issue paper to the amount of 
$150,000, in order that the effect specified may be produced, 
and that prices may rise in the proportion of ten to eleven. 

Another modification to be appUed to what has been deduced 
concerning the eflfects of paper money is, that the same 
amounts in specie and in bank notes may not be equally 
efficient in performing the functions of circulation. The effi- 
ciency, in this respect, of every kind of money, depends, not 
only on its quantity, but also on the rapidity, as has been 
already mentioned, with which it circulates. Now, bank 
notes will frequently circulate more rapidly than specie, on 
account of the greater facility of transporting or remitting 
them from one place to another. An addition, therefore, of 
$100,000 in paper of that description, to the money of a 
country, maybe more than equivalent, in its effects on present 
prices, to a like addition to it made in specie. But whether the 
paper be more or less than equivalent in efficiency to specie, all 
the conclusions which have been deduced, concerning the 
distribution of the circulating medium, would still be true, 
provided only we vary our supposition of $100,000 in bank 
notes having been added to the circulating medium, by sup- 
posing this medium to have been augmented by just such an 
amount in bank notes as is equivalent in its effects to 
$100,000 of the money originally circulating. 



148 TnK PRINCIPLES OF 



CHAPTER V. 

OP THE DIFFERENT CONSTITUENT PORTIONS OF THE CIRCULATING 
MEDIUM ; AND THEIR RELATIVE EFFICIENCY. 

Bank notes, whetlier issued by incorporated companies, or 
by private bankers, are not the only substitutes for specie ; 
and they are not even the only kind of paper money. The 
circulating medium must, indeed, be regarded as comprehend- 
ing every contrivance which performs the office of money, 
and by means of which, therefore, the use of any other 
medium of exchange may be partially dispensed with. Such 
contrivances are of various sorts. Besides the notes of bank- 
ers, which are promises for the payment of a certain amount 
of specie to the bearer on demand, the common promissory 
notes of individuals, in which they engage to pay a sum of 
money at a future day for value received by them, may be 
transferred from one individual to another in payment for 
commodities purchased, and so may be made use of for the 
very same purposes as those are employed to accomplish, to 
which the term money, ordinarily so called, is applied. Bills 
of exchange, that is orders or drafts for money by creditors 
upon their debtors residing at a distance, or by merchants or 
bankers on their correspondents, in favour of third persons, 
are in the same predicament. Payments may be made by 
simply removing an entry in the books of a banker to the 
credit of one individual, and entering the amount of it to the 
credit of some other individual. The bank checks, or orders 
upon the banker for payment of the moneys deposited with 
him for safe keeping, may themselves be passed from hand to 
hand, and thus be made to take the place of money. The 
same is obviously true concerning every sort of public secu- 
rities, and every representative whatever of property. Each 



POLITICAL ECONOMY. 14& 

of the contrivances enumerated constitutes a portion of the 
circulating medium, the efficiency of which is to be estimated, 
as well in proportion to the comparative rapidity of its circu- 
lation, as to its value in exchange. And the effects on prices, 
as also the farther changes which will be consequent upon 
those effects, when any one or more of these constituent 
elements of the circulation are augmented in quantity or in 
the rapidity with which they perform the office of money,, 
will, of course, be entirely similar to what the effects on 
prices, and the further changes resulting, have been shown to 
be in the case of bank notes. 

The contrary effects must necessarily take place, if we 
suppose either of the above contrivances, or species of paper 
money, to perform the office or functions of money less; 
rapidly than they did before. 

It must, next, be apparent to the reader that, if we knew 
to what extent those various contrivances, including bank 
notes, supply the place of hard money, — having respect as 
well to rapidity as to quantity, — we should find no difficulty 
in estimating what the amount of the circulating medium 
would be, did it consist exclusively of the precious metals ; 
and in speaking of the amount of the circulation in any one 
country, as compared with others, or with the world in 
general, it is such an estimate as this which should always be 
made. 

And it is also easy to perceive what an errour we should 
fall into, were we to look upon the whole circulation of a 
country, — more especially of one in as high degree commer- 
cial as the United States or Great Britain, — as consisting- 
only of the specie which circulates, and of the bank notes. 
which are made payable to the bearer on demand. 



30 



150 THE PBINCIPLES OP 



CHAPTER VI. 

THE VALUE OF THE ENTIRE CIRCULATING MEUIUM REMAINS 
ALWAYS UNALTERED CONSEQUENCES FROM THIS PRINCIPLE. 

The following proposition is an obvious inference from the 
principles already established, — that, no matter to what 
extent the circulating medium of a country may at any time 
have been augmented or diminished, its value always remains 
unaltered ; the eifect of such augmentation or diminution on 
the prices of things being to raise them in the one case, and 
to lower them in the other, in the same proportion.* 

Hence too, (notwithstanding the apprehensions which are 
so frequently expressed among ourselves, even by persons 
whose opinions generally are entitled to a considerable degree 
of respect, lest the United States might not possess a circu- 
lating medium large enough for the business purposes of the 
community) — it is a matter of not the least moynent whether 
this medium be great or small. Whatever in any country may 
be the amount of it, if we suppose it to be reduced to the 
tenth part of that amount, the prices of things, as has been 
shewn, will likewise become only the tenth of what they are ; 
and an hundred dollars will perform precisely the same func- 
tions which are now performed by a thousand. The difficulty 
of procuring the former sum will, indeed, be quite as great as 
is at present that of procuring the latter ; but these sums of 

• There is a reason why the prices of all things will not rise or fall in the pre- 
cise proportion of the augmentation or diminution of the eirculating medium ; 
or, at least, why this will be the case only after a certain period shall have 
elapsed. Some commodities ordinarily fluctuate in value much less than others ; 
and labour is such a commodity. .A customary rate of wages comes, indeed, to 
be paid, in every place and in every employment ; which, because it is a custom- 
ary rate, is only slowly alterable. 



rOLITICAL ECONOMY. 151 

money will, in the two cases, possess the very same exchange- 
able value, and will, on this account, bestow upon their owner 
a command to an equal extent over the various necessaries and 
luxuries of life. I need not say that our general conclusion 
will not be different, though we should suppose the diminution 
of the circulating medium to occur in any other proportion 
than that of ten to one. 

It is true we may conceive the circulating medium to be so 
exceedingly reduced in quantity, and a given portion of 
money, consequently, to become so valuable, that the coins, 
which are requisite for purchasing the articles most frequently 
needed, would be inconveniently small. But those coins might 
also be inconveniently large, if the circulating medium be 
exceedingly augmented in quantity. And It must be obvious 
that, between these two extreme Hmits, there is a vast range, 
in which the quantity or amount of the circulation must be a 
matter of the greatest indifference. 

To avoid being misunderstood, I wish my readers to note 
particularly that what has just been stated has had no refer- 
ence to the inconveniences and losses necessarily experienced 
by creditors whenever the circulating medium is undergoing 
the process of being augmented or expanded, or to those far 
greater inconveniences and losses to which debtors are sub- 
jected on the occurrence of every diminution or contraction 
of that medium. These "evils of change" can only be 
obviated by rendering the change in every case as gradual 
as possible. We may conceive it to take place, however 
great it may be, so very gradually as to be scarcely percep- 
tible in its effects, even by the parties most interested. And 
the ultimate results are, at all events, such as I have described 
them to be. 

The temporary evils of which mention has been made, it 
may be proper to say here, will be considered in some detail, 
when I shall treat of the immediate effects resulting from the 



152 



TUB PBINCIPLES OP 



expansions and contractions of the paper money issued by tlie 
banks. 

Now if all bank notes were to cease to circulate, and no 
other description of paper money were to be issued by the 
government, or from any other source, to supply their place, 
— although tlie quantity of specie, as well as the mercantile 
paper and other contrivances actually existing in the country, 
for economising the use of money, would be amply suffi- 
cient for performing all the functions of circulation, — there 
can be no doubt of every contrivance to supply the place of 
money being made use of to a greater extent than heretofore. 
While for example, a bill of exchange may be refused, in 
payment for commodities purchased from an individual who is 
indebted at the very place on which the bill in question is 
drawn, and refused because of his preferring to remit the 
amount of his debt in bank notes, — the bill of exchange, if 
obtainable at a premium less than the expense of transporting 
specie, may have a preference given to it when bank notes 
no longer circulate. Other examples, too, will occur to the 
reader, of ordinary mercantile paper then finding employment 
as money, in the room of bank notes. 

But such an addition as this to the circulation is of little 
comparative importance in respect to my present purpose. 
Even tf it were not to occur, it will follow, on the principles 
already explained, that the diminution which has taken place 
of the money of the country, by means of the withdrawal of 
all bank paper, will be distributed, so to speak, throughout the 
whole commercial world. Hence it is easy to conceive that 
the actual diminution of the money which circulates, after 
this distribution shall have been accomplished, — and it will 
evidently not be slow in being accompUshed, — ^will be consi- 
derably less than it was at first. If the circulating medium 
of the United States be supposed to constitute a tenth part of 
that of the whole world, and if we, besides, suppose as much 



poimcAL EcoNOMr. 153 

as fifty millions of dollars to be withdrawn from the circu- 
lation, the amount, by which the circulating medium of our 
country will have been diminished, will be only five millions 
of dollars. 

This, again, is not the ultimate or permanent condition of 
the circulating medium. On account of its general diminu- 
tion, prices every where will have fallen, or the exchangeable 
value of money will have risen. A more active production of 
the precious metals, consequently, will ensue, until prices 
return very nearly to their former rates, and the circulating 
medium very nearly to its former amount. 



CHAPTER VII. 

THE DIFFERENT KINDS OF BANKS — HOW THE CREDIT OF BANKS OF 
CIRCULATION IS MAINTAINED. 

There are three sorts of banks, viz. banks of deposite, of 
discount, and of circulation. Any one bank may, however, 
partake of the character of all of these ; as is the case univer- 
sally throughout the United States. 

By a bank of deposite is meant an institution which receives 
the money of individuals on deposite, giving them credit in its 
books for the money deposited ; any portion of which may, at 
any time, be withdrawn by its owner, or transferred to hia 
creditor without being withdrawn, — the fact of such transfer 
being duly noted in the books of the bank. The expense of 
banking may, in this case, be met by exacting a small per 
centage on the making or the withdrawing of any deposite, or 
on the transferring of it from one individual to another. 



154 THE PRiNcirLEs or 

While some of the depositors are witiidrawing their money, 
deposites will be making by others ; so that, notwithstanding 
the liability of the bankers to restore upon demand the money 
deposited with them, tiiey will, generally speaking, find them- 
selves in the constant possession of a certain sum, which they 
will be tempted to profit from by lending it out to such 
persons as may be desirous of borrowing. One of the most 
convenient modes of doing this is by the discounting of pro- 
missory notes ; and hence the origin of banks of discount. 
Such discounts, however, may be made, not only with the 
money of depositors, but with that of individual bankers, or 
companies of bankers, with a view to the profits to be 
derived from their respective capitals, as in any other employ- 
ment. 

But a bank, instead of parting with its specie in exchange 
for the promissory notes of individuals discounted by it, may 
issue promissory notes of its own, which are made payable to 
the bearer in specie on demand, and which are capable, on 
account of their great convenience, as well as the credit 
attached to them by the public generally, of performing all 
the functions of money ; the bank becoming, in this manner, 
a bank of circulation. 

Here I may remark that, when I speak of the hanking 
system of the country, I look upon the furnishing of a paper 
circulation, as a substitute for specie, as constituting its essen- 
s tial feature. 

It is evident that no inducement would be offered to a bank 
for issuing its own paper, had it not the power to issue it to a 
greater amount than it could do of specie ; and the excess of 
the amount of paper money issued above that w^hich could be 
issued of specie must be sufficiently great to enable the 
bankers to pay the augmented expenses of management. 
From the very nature, then, of such a bank as I am now 
speaking of, it will put more of its paper in circulation than 
it has specie in its vaults to redeem it. It promises every day 



POLITICAL ECONOMY. 155 

to do what it knows, and what every one at all acquainted 
with the nature of banking knows, would be impracticable for 
it to do, if all its notes were to be presented for payment. In 
this event, nothing would be left for it but to suspend its 
business. And the question naturally presents itself: — Why 
is it that the credit of a bank is such that, notwithstanding 
what has been said, the holders of its notes ordinarily shew no 
anxiety to exchange them for specie, and that no run for 
specie, in consequence, is made upon the bank ? 

Before answering the question which has been put, and in 
order to simplify as much as possible my present subject, I 
may observe that, whatever may be the capital of bankers, it 
is only the portion of it consisting of specie held in readiness 
for the purpose of redeeming their notes, together with the 
advances necessary in other respects for carrying on bankin^r 
operations, which in reahty constitute the capital employed 
in banking. All the capital which the bankers may other- 
wise possess is invested similarly to that of other capitalists 
who are engaged in the various branches of production. 
Moreover, it may be here mentioned that I shall, as I proceed, 
use language implying that the business of banking is con- 
ducted altogether by means of the capital owned by the 
bankers, without the aid of any deposites made by individu- 
als, and liable to be at any time withdrawn by them. My 
doing so cannot possibly lead to any practical errour in my 
conclusions, because the possession of a certain averao-e 
amount of deposites is equivalent simply to so much money 
borrowed by the bankers ; which money they have it in their 
power to dispose of just as they have it in their power 
to dispose of every portion of the capital of which they 
are the owners. The nature of the effects produced, on 
the circulating medium, must necessarily be the same in the 
one of these cases as in the other. 

The reason why the notes of a bank may maintain their 
full credit, in despite of the fact that the whole value of those 



15G THE PRINCirtKS OF 

notes in circulation is greater than the amount of specie in the 
possession of the bank, will be quite obvious, if we look for a 
moment at the credit, as well as the debtor side of its affairs. 
And to give precision to our ideas, let us suppose a particular 
case. Let a bank be established, — say in the city of Phila- 
delphia, — with a capital in specie of §100,000. If this bank 
issue its notes to the amount of $1.50,000, it will be indebted 
to the public in an equal amount ; and to pay its debts, it 
holds, in addition to the specie in its vaults, the promissory 
notes of individuals to an amount somewhat greater than 
that of its own notes, — greater, that is, by the discount upon 
the former. The payment, too, of the promissory notes which 
have been discounted by the bank is vouched for, not merely 
by the promissors, but by endorsers, whose ability to pay 
them, if required to do so, has been pronounced upon by a 
competent board of directors, previously to their having been 
discounted. And again, the loans made to individuals, on the 
security of their notes so endorsed, were made for a short 
period of time only, — generally speaking, for sixty, or at most 
ninety days. Were those loans, in every instance, made even 
for the longer of the terms just mentioned, and if we assume 
as much to be loaned in one day as in another, the bank 
would have it in its power to call in one-ninetieth of its notes 
in circulation, or to receive in specie one-ninetieth of their 
value, every successive day, and thus to provide itself very 
speedily with the means of meeting its engagements. Besides 
all this, should the bank be possessed of any property or capi- 
tal, in addition to its proper banking capital, such property 
will afford additional means of security to its creditors. It is, 
then, not at all surprising, that the notes of a bank, when it is 
managed with a certain degree of prudence, should maintain 
their full credit, and should be regarded as in fact equiva- 
lent to the specie which they profess to represent. 

It is very obvious that if, while a bank retains in its vaults 
the same amount of specie, it extends its circulation more and 



POLITICAL ECONOMY. 157 

more, its condition will be continually becoming less secure ; 
until, at length, the specie which it possesses may not be 
regarded by the public as sufficient to cover the risk of the 
non-payment of the promissory notes of individuals held by 
the bank. The notes of the bank will then depreciate in 
general estimation, and a run upon it for payment of them 
may ensue. An alarm or panic may indeed be produced to 
so great an extent, by the supposed inability of the bank to 
meet its engagements in a short period of time, or at all, as to 
oblige it to stop payment, and to wind up its affairs in the best 
manner it can. 



CHAPTER VIII. 



TENDENCY OF BANK NOTES TO EXPEL SPECIE FROM THE CIRCULA- 
TION MANNER IN WHICH THE NOTES ISSUED BY ONE BANK 

CHECK THE ISSUES OF ANOTHER. 

A LOSS of credit is not the only reason why the specie of a 
bank may be drawn from it, in exchange for its notes, with 
more or less rapidity. This will also take place whenever 
any extraordinary demand shall arise for specie, — say for 
specie to be exported ; and one cause of such a demand 
arising may be a previous unusual enlargement of the circu- 
lation of the bank. 

After what has been already delivered on the effects pro- 
duced upon prices, and on the distribution of the money of 
the world, by an emission of paper money, the proposition 
which has just been stated can scarcely require any farther 
proof. An illustration of the changes resulting in the case 
will, nevertheless, be given, with a view to make them 
thoroughly familiar to my readers. 

21 



158 THE PRINCIPLES OF 

Take the instance, already considered, of a bank estab- 
lished in the city of Philadelphia, with a specie capital of 
$100,000, and which has put forth its notes to the amount of 
$150,000. Now let it be supposed that prices, and therefore 
the value of money, have become every where equalised, in 
the sense in which I use this expression, — so that there is no 
demand in the community for specie to be exported abroad. 
I shall su})pose the notes of the bank to be then issued more 
abundantly than before. Let it issue $200,000, instead of 
$150,000. There will, of course, be a local rise of prices; 
which will be followed by an exportation of money, and an 
importation of other commodities, until prices dcchne to their 
former level. The specie exported may not be wholly taken 
from what is actually circulating ; it may be drawn in part 
from the bank, in exchange for its own paper, or by depositors. 
To the extent in which this is done, the circulation of the bank 
will, plainly, not be as great as it woiuld otherwise be. On 
account, however, of the greater convenience, other circum- 
stances being the same, of bank notes than specie, it will be 
easy for the bank to procure specie for them. So long, indeed, 
as more specie is in circulation than what is required for pay- 
ments of a smaller amount than that of the smallest bank 
notes, and so long as the bank shall be willing to increase its 
issues, will it be brought to the bank, sooner or later, by the 
holders of it, in any quantity, and bank notes drawn for it in 
return. The bank of which I am speaking can, consequently, 
if it chooses, always retain its original specie capital of 
$100,000, while it is extending its circulation more and more, 
and while, by doing so, it is causing the expulsion of the specie 
circulating within the sphere of its operations. And it will be 
readily perceived that, if we abstract from any possible loss 
of credit it may incur by so large an issue of its notes, we may 
suppose it to go on issuing them, until the whole of the specie 
originally circulating shall have been sent abroad, — excepting 
only what is needed for payments which, on account of 



POLirrCAL ECONOMY. 159 

their comparatively small value, cannot be made with bank 
notes. 

The conclusion which has just been deduced in reference 
to a bank in Philadelphia, I need not say is equally true in 
reference to one established any where else, for instance in 
New York ; and it may be added that in every country 
where a sufficient capital is invested in banking to enable the 
banks to issue their paper without fear of a loss of credit on 
their part, and without the fear, on this account, of a run for 
specie upon them, the actual tendency of things will be to an 
entire substitution of paper money in place of a metalUc 
currency, with the sole exception above mentioned. This is 
the case in our own country, as every one knows. 

After having expelled the specie from circulation, and 
produced a state of thing in which the specie that may be 
farther required for exportation can only be obtained from the 
banks, — should they continue to extend their issues of paper, 
their stock of specie will be more or less rapidly reduced ; 
and as the profits or dividends of the banks will be greater 
according as they issue a greater amount of paper, they will, 
in consequence, push their issues to the limits of safety, — 
safety, not only from their paper becoming in any degree 
discredited, but likewise from that of having a sudden and 
extraordinary demand made upon them for specie, which 
they may not have the means of meeting. Now, still ab- 
stracting from all consideration of the former risk, the inquiry 
occurs, how the proper degree of safety in respect to the 
latter is to be ascertained. Here nothing more can be 
said than that experience must be our guide, — a wide expe- 
rience however, and not one acquired in one set of circum- 
stances only. A stock of specie which might, with propriety, 
be regarded as amply sufficient in, so to speak, a quiescent 
state of things, when the affairs of the commercial world 
have been going on, and are likely to go on, for a conside- 
rable period with great uniformity, would, on the other hand, 



IGO THE I'BINCIPLES OF 

very possibly be pronounced by competent judges to be entirely 
too small, for the purpose intended, at a time when the 
relations of commerce, and therefurc the demand for money, 
were liable to frequent and considerable alteration. 

If the directors of all the banks in the country were to 
form the same estimate precisely of the different risks to 
be guarded against in the management of their affairs, and 
to be equally prudent, — and if, moreover, the banking 
capital of the country was every where distributed according 
to the relative business wants of the community, — the reader 
will not fail to perceive that the proportion in any one bank 
of its circulation to the specie it has in its possession would 
be the same as in every other. In this state of things, let some 
one bank, violating the dictates of prudence for the sake of 
greater gain, or, it may be, simply through ignorance of 
the principles of banking, attempt to enlarge its circulation 
beyond the usual proportion. What consequences will 
follow ? In the first place, as in the case of every augmen- 
tation of the circulating medium, however brought about, 
this medium will be depreciated in value ; that is, the prices 
of things will rise. Commodities, other than money, will be 
transported to the place w^iere all this has occurred from 
other places, and especially from such as are in the vicinity, 
on account of the comparatively small cost of transporta- 
tion ; — and those commodities will be paid for in money, 
the motive having been diminished for exporting every 
thing else. While the money going to remote places will 
consist, for the most part, of specie, the sphere in which 
the notes of our bank chiefly circulate will, nevertheless, be 
extended. Bank notes will, within a certain distance, be 
preferred to specie. And Philadelphia notes, when unduly 
increased in amount, may thus, for example, as it were 
invade the province of New York notes, and interfere 
with them, provided these have not been increased propor- 
tionally. 



POLITICAL ECONOMY. 161 

But the effect described can never be otherwise than 
temporary. The very fact of Philadelphia bank notes circu- 
lating where they did not before, or circulating in greater 
quantity, and to a greater value, than before, will tend to 
produce a suspicion that they have been issued unduly and 
imprudently. This feeling, again, will be apt to check their 
free circulation, and to cause their value to fall below par. 
They will then find their way gradually back to the source 
whence they originated, to be exchanged for specie; and 
the expanded circulation will be contracted eventually to its 
former limits. 

This process may be very much expedited by the action of 
the banks which have been interfered with. Those of the city 
of New York, on receiving in payment of the promissory 
notes discounted by them, or in deposite, an unusual amount 
of Philadelphia bank notes, can easily send these to the latter 
city, and draw specie from the banks there in return for 
them ; or the New York banks, if they think proper, might 
discredit them to a certain extent, and in a certain region, 
by consenting to receive them only below their nominal or 
par value, or by refusing to receive them at all. 

After what has been said, the reader will understand dis- 
tinctly how one bank of a country may be a check upon 
another, and how each bank may be obliged to confine its 
operations within what may be called its proper sphere. 

I may add that the above remarks will apply to the manner 
in which the several banks established in the same place have 
it in their power to check each other's over-issues of paper 
money. They will, at least, apply with such slight modifica- 
tions as will very readily occur to my readers. 



162 THE PHINCIPLE8 OF 



CHAPTER IX. 

IMPOSSIBILITY OF PERMANENTLY EXPANDING THE CIRCULATINO 
MEDIUM OF A COUNTRY BEYOND THE AMOUNT WHICH IS 
DETERMINED BY THE COST OF PRODUCING THE PRECIOUS 
METALS. 

The check mutually afforded by the banks of a country to 
an over-issue by them of paper money may, it is evident, be 
entirely removed by a combination of them for this purpose. 
If two or more banks combine together, they will be enabled 
to act with a comparatively greater efficiency upon the cur- 
rency, for good, by checking the issues of other banks, or for 
evil, by unduly extending their own issues of paper money. 
Their united efficiency too, in these respects, will not differ 
from that of a single bank with a capital equal to the capitals 
taken together of all the combined banks. 

We must be careful, however, not to form an exaggerated 
estimate of the power which a bank with a large capital, or a 
combination of a numoer of banks, can exert over the currency 
of a country. On account of the checks to the over-issuing 
of paper money still administered by the independent banks, 
as well as by the state of the money market abroad, it will be 
impossible, excepting for a very short period of time, to 
expand the circulation of any place, or district of country, 
beyond its usual proportion of the circulation of the whole 
commercial world. 

This proportion, it will be recollected, I before shewed to 
be necessarily of such an amount, on the average, as would 
consist with a scale of prices that would repay the cost of 
producing the precious metals. And the advantages, or dis- 
advantages, of any one mode of regulating the currency over 



POLITICAL ECONOMY. 163 

another, all resolve themselves into the comparative extent 
and frequency of the deviations from perfect uniformity, in 
the value of a given portion of it, which may be temporarily 
occasioned. 

A proposition which is intimately related to what has just 
been delivered is, that when the banking capital of a country, 
properly so called, whether there be few banks or many, is 
extended beyond a certain amount, it will be impossible to 
circulate, on the average, any more bank notes than before. 
An example will make my meaning perfectly clear. Suppose 
the circulation of all the banks to have reached the hmits of 
safety ; the whole circulating medium being supposed at the 
same time to consist exclusively of paper money, with the 
exception of the metallic money wanted for purchases of a 
small value. Now let a new bank be established ; and let us 
trace the consequences of this institution entering the field of 
competition with those of like nature already in existence, — 
consequences, I may observe, which are precisely such as 
would result from an augmentation to an equal amount of the 
capital of the latter. Also, let the new bank commence 
business by discounting the promissory notes of individuals, so 
as to put into circulation its own notes to the amount of 
$100,000. It is manifest, from the principles already 
explained, that the expansion of the currency, thus produced, 
must soon be followed by a corresponding contraction of it ; 
which contraction all the banks in the same place or region 
will be equally obliged to make. The new bank will then 
have obtained a sh^re of the paper circulation at the expense,, 
and only at the expense, of that of the others. Every 
$100,000 of its paper which it may issue will, of course, be- 
followed by similar effects. And eventually, it will be able 
to maintain a circulation bearing the same proportion to its 
specie capital as that which every other bank bears to its 
specie capital. But our supposition has been that this capital 
is augmented without the specie, on the basis of which the 



IGl THE PRINCIPLES OP 

additional bank conducts its operations, having been taken 
from the otiier banks. The inference is obvious, that the 
proportion in. every bank of specie to the paper it has put 
forth will have become greater tiian before ; and it is equally 
obvious that a hke inference will hold good, whatever may be 
the number of additional banks established, and whatever may 
be the additions successively made to the capitals of the banks 
previously existing. 

But in the struggle of the different banks to extend their 
circulations as much as possible, and notwithstanding the 
checks which they apply to each other's issues, a tendency to 
a general extension of these will be found, under ordinary 
circumstances, to take place. The specie of the banks, 
while this extension is going on, will be drawn from them to 
be exported abroad, until their stock of it is reduced to the 
limits of safety. So long, now, as the same average degree 
of safety shall continue to be aimed at, it will be plainly out 
of the question for tliem to extend their circulation any 
farther. And again, the reduction of the specie of the banks, 
in the manner which has just been described, is equivalent to a 
reduction of what is, properly speaking, the capital employed 
in the business of banking. Hence we may conclude, not 
only that the share of the circulation of a country obtained 
by any new bank (when the circulating medium consists 
already of paper, excepting alone what is required for small 
change) is obtained at the expense of a diminution to an 
equal extent of the circulation of all the other banks, — but 
also that the proper banking capital is at the same time, and 
under similar circumstances, unsusceptible of being increased. 
An indefinite amount of banking capital nominally so called 
may, it is true, still be conceived to be created, but which 
must, in reality, be employed otherwise than in banking. And 
because it must necessarily be so employed, I may remark 
that no disadvantage (the reader will bear in mind that I am 
now concerned with ultimate effects) will accrue to the com- 



POLITICAL ECONOMY. 165 

munity simply on account of its increase, no matter how 
great this increase may be. On the contrary, it will furnish 
an additional fund for insuring payment by the banks to their 
creditors on any emergency. 

In the exposition which has been made of the theory of 
banking, I have suppos-^d the notes of a bank to enter into 
the circulation by means of the discounting of the promissory 
notes of individuals. This may, however, manifestly occur 
in more ways than one ; in as many ways, indeed, as there 
are modes of lending money, or of doing what is equivalent to 
the lending of money; as, for example, the purchase, on the 
one hand, by the banks of bills of exchange, and the sale by 
them to individuals, on the other, of their drafts upon each 
other, — a two-fold business in which the banks of the United 
States have latterly engaged to a considerable extent. But 
on whatever occasion, or in whatever manner, bank notes are 
issued, the reader cannot fail to perceive, on a moment's 
reflection, that the results which have been deduced, in this 
and the two preceding chapters, will always be the same. 

That after a certain amount of capital has been, strictly 
speaking, invested in banking, no more can be so invested, — 
that no new bank can then transact any business, excepting at 
the expense of the business of the banks previously existing, — 
and that it is absolutely impossible for the banks of a country, 
under any circumstances, to go on continually augmenting 
the circulating medium, and consequently raising the prices 
of things, — are propositions of the utmost importance in the 
theory of banking. They have, nevertheless, been exten- 
sively called in question by a class of reasoners who are ever 
confounding ultimate with temporary effects. It is to ultimate 
effects alone that these propositions have reference. And the 
reader, if he will recollect this, will nowhere meet with either 
fact, or argument, to shake his confidence in their truth. 

Were the ultimate effects the only ones produced by an 
alteration in the value of money, or, which is the same thing, 

22 



166 THE PRINCIPLES OF 

were those effects at once produced, without the intervention 
of other and temporary changes, the advantages of l>a)iks of 
circulation would scaiccly be detracted from by any counter- 
balancing disadvantages to which they would still be liable. 
What those advantages are, I shall proceed to stale in the 
following chapter. 

The disadvantageous action of the banks on the commu- 
nity will be pointed out when I shall exhibit the nature, 
extent, and frequency of the temporary changes above 
adverted to. 



CHAPTER X. 



THE ADVANTAGES, REAL OR SUPPOSED, OF A BANK NOTE CIRCULA- 
TION. 

The great advantage of a bank note circulation is, that a 
country is enabled, by means of it, to dispense with the use of 
the precious metals to an amount equal, or (on account of the 
quicker circulation, generally speaking, of bank notes) to an 
amount more than equal to the excess of the whole value of 
the notes issued over that of the specie retained in the vaults 
of the banks, — the specie, besides, thus rendered unnecessary, 
not being parted with gratuitously. My readers will recollect 
that, when paper money is introduced, there will be a dimin- 
ished production of gold and silver, until the circulating 
medium again finds its proper level. And this impHes an 
augmented production of other commodities, which will be 
an addition to the wealth of the community. 

Whether the specie previously circulating was, or was 
not, procured from sources existing in the country itself, will 
make no difference here. If the former be the case, it is easy 



POLITICAL liCONOMJf. 167 

to understand how a diminished production of the precious 
metals will be followed by an augmented production of every 
thing else. But if those metals be procured from foreign 
mines, they could in fact only be procured in exchange for 
the products of the country ; and, like all other imports into 
it, they may be themselves, therefore, truly considered as the 
products of its capital and labour. It is manifest that the 
commodities which were before exchanged for the gold and 
silver, which are no longer required, are so much clear gain ; 
— not the less so, too, when the labour applied to their produc- 
tion is transferred to the producing of such other commodities 
as may perhaps be in greater demand. 

A country may derive the benefit, just described, from the 
substitution of a paper currency for a hard money circula- 
tion, — at least to a very considerable extent, — without waiting 
for the transfers of capital and labour to take place ; provided 
it be the only country in w^hich a currency of the kind is 
introduced. For then the paper money, as it enters into the 
circulation, will cause the money previously circulating to be 
exported in payment for such commodities as may be in most 
demand, until no more than its due share of the augmented 
circulating medium of the world will be retained in the coun- 
try. That the commodities imported are to be considered as 
a national gain, follows necessarily from the fact of the circu- 
lating medium, notwithstanding a portion of it has been sent 
abroad, being still adequate to the performance of all the 
exchanges required, and quite as much so as it was before 
this exportation occurred. 

In proportion, also, to the degree in which paper money is 
introduced in any country beyond the quantity of it which 
circulates in others generally, will the immediate benefit be 
the greater. The full benefit can in no case be enjoyed before 
the amount of gold and silver money shall be reduced to the 
proper point, by the less active working of the mines. 

When this process shall have been completed, if we suppose 



1G8 THE PIJINCIPLES OF 

fifty millions of dollars to have been excluded from circulating 
in the United States by the issue of bank paper, the country 
will thereby have acquired an amount of wealth of equal, or 
nearly equal value. This addition to its wealth is, however, 
made once for all. From the nature of things, it can never be 
renewed. It is, therefore, equivalent to a gain of the annual 
profits upon a capital of fifty millions; and assuming the ordi- 
nary rate of profits to be ten per cent., — an assumption higher 
than the facts will justify, — it will amount to the sum of only 
five millions of dollars per annum, or to about half a dollar for 
every white inhabitant of the country. 

This estimate might even seem to be an exaggerated one, 
when the reader considers that the whole of the fifty millions in 
question will not be employed as capital. Indeed, we have no 
right to suppose that any larger proportion of it will be em- 
ployed in this manner, or productively, than that which the 
whole of the capital of the country bears to all the wealth it 
possesses. But this circumstance is here of no moment. The 
present value of a certain portion of wealth is precisely the 
same, whether it is destined to be consumed productively or 
unproductively ; and consequently, no matter in what propor- 
tions any given accession to the national wealth may be 
distributed between capital and what is not capital, it must be 
regarded as equivalent to an accession of a precisely equal 
amount to the former alone. 

All other circumstances being the same, another advantage, 
which bank notes possess over specie, is their greater conve- 
nience to be kept on hand, as well as to be conveyed or 
remitted from place to place. This convenience is the greater, 
obviously, where the sums of money are considerable ; but 
that it exists to a certain degree even where these sums are 
comparatively small, is notorious from the extent in which the 
coin of the country is excluded from the circulation by the 
preference every where given to the smallest denominations of 
notes which are permitted to circulate. For making remit- 



POLITICAL ECONOMY. 169 

tances indeed, from one place to another, we are not reduced 
to a choice between bank notes and specie. Where the former 
cannot be procured, recourse may be had to bills of exchange. 
But, in general, this will not be done, as the reader must be 
aware, so long as the notes of incorporated and wealthy- 
banking institutions are procurable for the purpose. 

Besides the advantages which have been stated ><3-4ow from 
the use of bank paper, many others are ve/y coirtmonly 
ascribed to it ; and banks of circulation have l/een,jisft unfre- 
quently, represented as constituting the chief sGai;<ie whence the 
rapid advances of the United States in wealth and prosperity 
have originated. It will be proper to examine into the correct- 
ness of these opinions, before I attempt to exhibit the disad- 
vantages to the community of which our banking system is 
productive. 

In the first place, bank notes are said to be a cheaper 
circulating medium than the precious metals. Now, if this 
opinion has reference to the first cost of the two mediums, its 
truth might be conceded without dispute. Not so, however, 
if the maintaining of them in their existing condition, after 
they have been once procured or established, is the meaning of 
those who hold the opinion. The wear of a specie circulation 
is quite inconsiderable in amount when compared with the 
expenses of banking, — including in these expenses the rents 
(employing this word here in its ordinary acceptation) paid 
for buildings, together with the salaries bestowed upon presi- 
dents, cashiers, tellers, and clerks, — not to mention a multi- 
tude of other expenditures, equally necessary. It is, perhaps, 
not generally known that the wear of the gold or silver money 
which circulates is as small as it really is. Mr. .Jacob, in 
in his work on the production and consumption of the precious 
metals, has estimated it so low as one part in four hundred 
and twenty annually, — that is something less than $120,000 
out of fifty millions. 

But secondly, a notion, very prevalent even among thinking 



170 THE PRINCIPLES OP 

men who have not examined our present subject on scientific 
principles, is, that banks, by the issue of paper money, add to 
the capital of a country. Here again, as in the instance of 
the opinion just before considered, there is a sense in which 
what is maintained will be assented to by every one without 
hesitation. The substitution of paper money for specie will, 
as lias been frequently repeated, induce an extraordinary 
importation of commodities other than money, — a certain 
portion of which commodities cannot fail to be employed 
productively. This is, however, not the sense in which the 
notion I am considering is entertained by those who are most 
forward in putting it forth as an argument in favour of our 
existing banking system. They imagine something like a 
direct creation of capital to be effected by the instrumentality 
of the banks. After what has been delivered concerning 
money in the present treatise, my readers will deem such 
a creation of capital to be sufficiently incomprehensible, and 
inconsistent with the principles already established. Irre- 
spective of the additional capital derived from the commodi- 
ties imported in exchange for the specie, which has been dis- 
pensed with in the manner above mentioned, it must be 
evident that the amount of the capital of the country will 
have remained altogether unatTected by the circulation of 
paper money in the place of specie. 

Again, there are those who are of opinion that, by extend- 
ing the system of commercial credit, banks (I speak of banks 
of circulation) have conferred great benefit on the commu- 
nity ; and there are others who, absurdly enough, go so far as 
to suppose that, but for the existence of such institutions, all 
credits would cease to be given, and cash would have to be 
paid in the making of every purchase. But the practice of 
selling upon credit, or of lending the money or capital of one 
individual to another, is surely in no respect dependent on the 
issue of paper money by the banks. Though all banks of cir- 
culation were to be prohibited, promissory notes could con- 



POLITICAL ECONOMY. 171 

tinue to be discounted, and money loaned by chartered 
institutions or by private individuals, who will perform all the 
functions of banking, with the exception only of the issuing of 
their own paper made payable on demand. Indeed, from 
what goes before, the reader will understand that, should 
every species of banking cease to be transacted, money would 
still be lent by the possessors of it for the purpose of enabling 
the borrower to pay the debts he may have incurred, or to be 
employed by him productively. And there is no reason why 
a less amount of money should be lent than when the banks 
were the principal medium for lending it. Since the quantity 
of money, and of the various substitutes for money, taken as a 
whole, as well as the motives for desiring to borrow it, are 
the same in the one case as in the other, the inducements for 
lending it cannot but also be the very same in both. 

I may remark that, besides the obvious inconveniences 
which would result from abolishing the practice, in every case 
whatever, of lending, the advantage of the credit system 
resolves itself into the distribution of the capital of the country, 
as far it is practicable in the circumstances of society to do 
so, in such a manner as to be most productively employed. 
Instead of directly superintending the application of his own 
means of production, this is now frequently done by the 
capitalist through the instrumentality of another person who 
can apply it more skilfully than himself, and who, because he 
can make a skilful application of it, finds it advantageous to 
borrow capital, and to pay for it the ordinary profits or interest 
of money. But whatever portion of the productive power of 
the country may, agreeably to this view of the advantages of 
credit, be attributed to it, no absurdity is surely more glaring 
than that of holding it to be essentially the power which has 
filled what once was the western wilderness in the United 
States with flourishing towns, and which has constructed our 
numerous " internal improvements." It is an absurdity more 
absurd than the regarding of the banks as so many genera- 



172 TUE PRINCIPLES OF 

tors of capital, by means of the simple process of issuing a 
certain number of paper promises to pay specie to the bearer 
on demand. The absurdity in question is no other than that 
of robbing the capital and labour of the country, — capital and 
labour tiiat would at all events have been employed so as to 
yield to the producers the ordinary profits, — of their proper 
functions, and of investing with them the imaginary power of 
credit. 



CHAPTER XI. 



DISADVANTAGES OF THE AMERICAN SYSTEM OF BANKING. 

I COME now to the disadvantages of our banking system.* 
The banks have been shewn to possess the power of 
expanding, and, of course, of contracting, for a timet the 
circulating medium of the district in which they operate ; 
and this power, it is a well known fact, they do actually 
exert. 

When the circulating medium is expanded, a given portion 
of it, as has been repeatedly mentioned, is depreciated in value. 
Were all purchases made with ready money, such deprecia- 
tion would be of no account ; for the prices of things would 
rise universally in the very same proportion ; and the various 
necessaries and luxuries of life would be procurable by every 
one, with neither more nor less of difficulty than heretofore-! 
But the case is very different where credit is extensively given 
to purchasers, and where the practice of borrowing prevails 
in any considerable degree. If I owe any one a thousand 

* Besides its expcnsiveness, already considered. 
+ See note to page 150. 



POLITICAL ECONOMY. 173 

dollars, and pay him at a period when an expansion of the 
circulating medium has taken place to the extent of a tenth 
of its amount at the time of the incurring of the debt, he will 
receive a less value than he ought to do. Eleven dollars is 
now worth just what ten was before, — and a thousand dollars 
is worth only ten elevenths of a thousand, or not quite ^910. 
The like is manifestly true in respect to every debt, whatever 
its amount may be. Debtors will be benefited, at the expense 
of their creditors, throughout the community. 

On the contrary, when the circulating medium is unexpect- 
edly contracted, opposite consequences will ensue. Creditors 
will then derive benefit, at the expense of those who are 
indebted to them. 

Although, in both the cases just considered, the wealth of 
the country may not have been diminished, since "what was one 
man's loss was another's gain, it will not follow that we should 
be indifferent to the results produced, or to the causes pro- 
ducing them. It is of great moment to keep the circulating 
medium as uniform as is practicable on principles of justice, 
independently of any considerations of expediency. Such 
considerations, however, dictate to the government, as well as 
to the citizens by whom the government is influenced, to 
endeavour to accomplish this object, as they would endeavour, 
to the extent of their knowledge and ability, to protect in any 
other way the rights of property. 

And notwithstanding there has been here no destruction of 
property, but only a transfer of it from one individual to 
another, there can be no question of the sum of human happi- 
ness having been diminished. The truth of my present remark 
will, I think, be apparent to every reader, if he looks at what 
may be called an average case ; one in which the parties 
concerned are placed in a pecuniary point of view, before the 
supposed transfer, in similar circumstances. Let two indivi- 
duals have equal incomes, say $1000 each, per annum. Will 
there be no diminution of human happiness if, unexpectedly 

23 



174 TUS PRINCIPLES OF 

to both, their arrangements for the future be interfered with, 
by $500 being taken from the one and handed over to the 
other ? Certainly there will be. The distress endured by the 
family of the one will not be compensated for by any addi- 
tional luxuries which the other's family will be enabled to 
consume. 

But there is yet another mode in which fluctuations in the 
amount of the circulation are productive of inconvenience, 
and, when they are in any degree considerable, of the severest 
distress. Let the banks refuse to discount as freely as they 
have been accustomed to do. Money will be rendered less 
abundant, and therefore more difficult to be procured. The 
purchase of luxuries may be postponed with comparative ease ; 
and even the necessaries of life may be procured, at least by 
a portion of the community, upon credit. The money, how- 
ever, that is requisite, for the fulfilment of existing contracts, 
cannot be dispensed with. When pay day comes, this must 
be provided for, or the contracting party suffer the penalty 
attached to a failure. To the merchants especially, of all 
classes, this penalty is a severe one, in respect both to the 
pecuniary losses resulting from their being obliged to close 
their business and adjust their accounts under most disadvan- 
tageous circumstances, and to the injurious consequences to 
their character for judgment or integrity. They will, of 
course, make every exertion in their power to obtain money, 
that they may be enabled to meet their engagements. Many 
of them will succeed in this, by consenting to give to the 
lenders of money a higher interest than usual, — an interest, 
too, always so much the higher, as the security for the repay- 
ment of the principal borrowed is the less. There will, 
nevertheless, be many others who, failing to obtain the requi- 
site means for complying with their engagements, will become 
bankrupt. The persons heretofore dependent upon them for 
employment will have to seek it elsewhere, at the very time 
when it will be most difficult to be obtained ; and much dis- 



POLITICAL ECONOMY. 175 

tress must, on this account, occur. And this is far from giving 
us a full view of the distress produced. Those individuals 
who have been relying upon the receipt of the moneys due to 
them by others, and who have failed to receive such payment, 
will in their turn, very frequently, be prevented, in consequence, 
from paying with punctuality what they themselves owe. The 
distress, of which I am speaking, will thus be extended through 
the various ramifications of society, and will be every where 
more or less intensely felt, according to the magnitude of the 
disturbance to which the currency of the country has been 
subjected. 

The class of inconveniences and injuries which has just 
been shewn to result from a contraction of the circulating 
medium will, it is manifest, have no existence in the opposite 
case of an expansion of that medium beyond its ordinary 
amount. But more than this : not only will no inconvenience 
of the kind be in any degree experienced, but a scene of pros- 
perity will be every where exhibited. Money being plentiful, 
the merchants, besides punctually paying their debts when 
due, will be prompt to make new purchases. Relying too on 
the continuance of this state of things, they will push their 
credit farther than they were accustomed to do. If the 
expansion in question shall go on for a time, they will be 
enabled, by the corresponding rise of the prices of commo- 
dities, to realise large profits ; and speculations generally, by 
whomsoever made, and of whatsoever kind, will eventuate 
successfully. 

All this would be well, provided the course of things were 
always to proceed in the same direction. A reaction, how- 
ever, cannot fail to take place, sooner or later ; and the proba- 
bility of its speedily taking place, as also of its being considerable 
in degree, will depend on the extent of the previous deviation 
of the currency from its average or usual state. Supposing 
no other causes to operate which are calculated to produce 
the effect, the mere augmentation of the circulating medium 



176 THE PRINCIPLES OF 

will, before long, produce it. In consequence of the rise of 
prices, there will be a larger importation from abroad, and a 
diminished exportation from Iiome, of commodities other than 
money, as has been before fully explained, — the balance being 
necessarily paid in money ; and not in paper money, but in 
specie. A demand for specie will be made upon the bdnks ; 
and they will soon be forced to curtail their discounts and 
thus diminish the circulating medium, — when the evils before 
described cannot fail to occur. Moreover, the reader will 
need no laboured argument for him to perceive that, should 
any extraordinary demand for specie arise from any other 
cause than that above mentioned, and arise while the currency 
is unduly expanded, the contraction of it which succeeds 
will be liable to take place more suddenly, and at the same 
time more extensively, as well as be more disastrous in its 
effects. 

The evils of the contraction of the currency, after it has 
been expanded, are well known very far to overbalance the 
advantages, or seeming advantages, of its previous expansion. 
Since, also, every expansion of the currency must necessarily 
be followed by a corresponding contraction of it, and since 
the banking system has a tendency to produce, and actually 
does pnoduce, greater and more frequent fluctuations of it 
from its average state than would otherwise take place, banks 
cannot but be pronounced, in this point of view, to be institu- 
tions injurious to the public interests. 

I must not forget to add to the injurious effects, already 
mentioned as resulting from every sudden contraction of the 
currency of a country, the diminished production which must 
ensue from the great number of persons who, at every period 
of the kind, are thrown out of employment altogether, or are 
only partially employed. This is sufficiently known to every 
one, not to require any illustration. 

In my reasonings throughout the present chapter, I have 
made no allusion to the possibility of the money of a country 



POLITICAL ECONOMY. 



177 



circulating with more or less rapidity ; and it was unnecessary 
for me to have done so, because it has been shewn that the 
effect of a more rapid circulation is the same as that produced 
when the currency has been increased in quantity,— and that 
the effects of a slower circulation and of a diminished cur- 
rency are likewise the same. Besides, when the currency of 
a country is suddenly expanded, the facility of procuring 
money will, very evidently, cause it to circulate more rapidly 
than before, thus enhancing the effects produced by the 
expansion. When a sudden contraction of the currency 
takes place, a less rapid circulation will, on the contrary, 
ensue, which will conspire with such contraction to give a 
greater degree of intensity to the effects produced by it. 



CHAPTER XII. 



THE SAME SUBJECT CONTINUED. 



The evils of the banking system, hitherto exhibited, have 
been stated to be the results of ignorance or of imprudence on 
the part of the bank directors, while acting with a view to 
the interest of the stockholders, or owners of the capital 
invested. There will be, besides, no small temptation for the 
directors and their immediate friends to speculate successfully 
upon ihe rest of the community, through the instrumentality 
of alternate expansions and contractions of the currency, to 
be produced by their own agency. It will be always recol- 
lected that it is in the power of a bank, or of a number of 
banks acting in concert, at their pleasure to cause a local rise 
of prices by enlarging their discounts, and thus temporarily 
extending their circulation. Let us, then, suppose an exertion 



178 



THE PRINCIPLES OF 



of this power to be resolved upon ; and we may likewise sup- 
pose the resolution adopted to be known only to the bank 
directors, and to a limited number of individuals to whom 
they may have communicated it. I need scarcely say that 
these parties will not be slow to avail themselves of their 
exclusive information. They will go into the market and 
purchase commodities, including stocks of all kinds, at their 
existing prices,— selling out again, when, on account of the 
expansion of the currency, prices have attained to their 
greatest height. Since now, on account of that contraction 
of the currency, which will be necessarily consequent 
upon its previous expansion, the prices of things will, sooner 
or later, subside to their former level, it is plain that the 
profits, thus made by the speculators, will be entirely at the 
expense of the subsequent purchasers. Profits too, made in 
this manner, cannot be classed with those which may result 
from ordinanj gaming : they are precisely of the same nature 
with the winnings of the gambler, who uses false dice or 
marked cards, unknown to his victim ; and the act of ob- 
taining them is deserving of no milder epithet than that of 
swindling, or robbery. 

On the occurrence, also, of a contraction of the currency, 
the banks, instead of impartially diminishing their accommo- 
dations to all classes of persons with whom they have been 
accustomed to deal, may grant extraordinary loans to the 
directors, or other favoured individuals, to enable them to 
realise a considerable gain at the expense of the rest of the 
community, — more especially of the mercantile community. 
Ihis will be eficcted by the lending again of the money, thus 
obtained from the banks, at a higher rate, and often a much 
higher rate, of interest, than that to which those institutions 
are by law restricted.* 

* It may be proper for me here to disclaim any personal allusions on my part, 
in tlie foregoing remarks concerning Uie liaUlity of tlie directors of banks, and of 



POLITICAL ECOXOMV. 179 

And besides these unrighteous speculations, the system I 
am considering diffuses throughout the community, by the 
frequency and extent of alternate expansions and contractions 
of the currency, a more active spirit of speculation. This is 
an evil ; for however useful the commerce of speculation may 
be shew^n to be when restricted within its due bounds, it 
easily degenerates, if stimulated to excess, into mere gambling; 
becoming then, more or less, a source of public corruption, 
although it may be generally conducted according to the 
ordinary standard oi fairness. It may be added that an 
undue amount of speculation implies an unnecessary number 
of exchanges ; and this, again, implies that the circulating 
medium is, on the average, unnecessarily large. By diminish- 
ing the business of speculation, our share of the circulating 
medium of the world will be lessened. Other commodities, in 
the manner so often stated, will take the place of the money 
dispensed with ; which commodities, whether employed as 
capital or not, must be regarded as a clear gain to the coun- 
try. But there can be no doubt of a portion of those commo- 
ties being thus employed. It is, consequently, perfectly proper 
to look upon every augmentation of the speculating spirit as 
equivalent to the locking up of a certain portion of the national 
capital, or, in other words, of what would otherwise have 
been consumed productively. 

Though the banks should, however, be conducted with a 
perfect knowledge of the principles of banking, as well as with 
the utmost prudence and integrity, there will yet be other 
mischiefs to tell of, which are incident to their operation on 

other dealers in money, to be guilty of improper courses. Their integrity is, 
without doubt, in general fully on a level with that of the great majority of 
mankind; and indeed in most instances, as is attested by the confidence reposed 
in them by their fellow-citizens, it may even be assumed to be above that level. 
Some of the class of persons of whom I am speaking I am happy to rank among 
my most esteemed and intimate friends. They must know that it is quite impos- 
sible that I intend any insinuations to their prejudice. 



180 TUE PRINCIPLES OP 

the currency. Assuming again, as is the case in the United 
States, the money in circulation to consist of paper, with the 
exception alone of the metallic money required for purchases 
of small value, let an extraordinary demand occur for specie, 
independently of any action of the hanks. Such a demand 
may originate in various ways. To mention one of these : 
Great Britain may engage in a war on the continent of 
Europe, and may, on this account, have occasion to export 
thither a considerable amount of specie. An extraordinary 
demand for money in that country will immediately arise, and 
the value of it will be there enhanced, or, what is the same 
thing, prices generally will fall. This state of things will, of 
course, not be confined to Great Britain alone. British goods 
will be exported in greater quantity than before ; and the 
importations in return, from all other countries, will be 
lessened. The balance arising will be paid in specie. What 
has just been said will apply especially to such other countries 
as are in the practice of importing British goods most exten- 
sively. Our own country is in this predicament, and an 
extraordinary demand for money may thus occur here very 
speedily after its occurrence abroad, as well as to an extent 
which is far from being inconsiderable. 

Now, under the circumstances supposed above, let a 
demand be made for a given amount of specie to be exported 
from the United States, say $100,000, and, for the sake of 
illustration, let us suppose the paper of all the banks of the 
country in circulation to amount to a million of dollars, based 
upon half a million of specie. The specie demanded will be 
drawn from the banks ; which will then retain in their vaults 
only $400,000 in hard money. They will, in consequence, 
not be able to circulate more than $800,000 of their paper, — 
acting, as I have assumed them for the present to act, with 
undiminished prudence. Their discounts must therefore be 
proportionally curtailed, and the circulating medium by this 
means contracted to four fifths of what it was originally. And 



POLITICAL ECONOMY. 181 

if, instead of the banks having a half million of specie in their 
possession, their stock of it was only $250,000, they would 
evidently be obliged, when $100,000 was drawn from them, 
as before, to curtail to double the extent. These examples 
will suffice to shew that, so long as specie for exportation is 
procurable from the banks, a contraction of the circulating 
medium will take place to a much greater extent than the 
amount of specie actually exported. On the supposition, on 
the other hand, of there being no other money in circulation 
besides specie, the exportation of any given amount of this 
from the country would, it is evident, be followed by no 
farther reduction of the circulating medium. Hence the reader 
will perceive another ground of objection to our existing bank- 
ing system, and one which is altogether independent of the 
mode, whether proper or improper, in which the banks of the 
country are managed. 

But it may be said that the existence of an exclusive specie 
circulation is not a supposable case ; because other sorts of 
paper money, such as bills of exchange, the common promis- 
sory notes of individuals, &c. will continue to circulate, even 
though bank notes should cease to do so. This would not in 
any degree invalidate the conclusion just arrived at ; provided 
such paper money would not circulate more abundantly in 
proportion to the whole amount of the circulating medium, 
when it does not consist in part of bank notes, than when it 
does. Where, however, there are no bank notes to serve any 
longer as a substitute for hard money, the reader will readily 
perceive that paper money of every other description will be 
made use of for the purpose to a greater extent than before, — 
but, on account of its comparative inconvenience, it is evident 
not to an extent sufficiently great to compensate for the want of 
hank notes. 

24 



182 THB FRINCIFLES 07 



CHAPTER XIII. 



THE SAME SUBJECT CONTINUED. 



The disadvantages of the existing banking system of the 
United States, which have been stated in the two preceding 
chapters, are perhaps not susceptible of being estimated with 
the same degree of accuracy as the advantages of that system 
before enumerated. It seems to me, nevertheless, that, on a 
review of those disadvantages, taken in connexion with the 
very considerable expenses incurred in the management of 
banks of circulation, the reader, even though he should have 
come to the perusal of the present treatise with the prevailing 
prejudices in favour of such institutions, can scarcely fail to 
experience doubts as to their utility, all things considered ; and 
some doubts too concerning the superior advantages, on the 
the whole, of a bank note over a hard money circulating 
medium. 

But I have not yet done with the disadvantages of our 
banking system. There is a class of these which attaches to 
it in its present condition, when the banks are not so numerous, 
nor the capital actually employed in banking sufficiently large 
to preclude their dividends from exceeding the ordinary 
interest of money. 

I advert to the means not unfrequently made use of to 
obtain from our state legislatures a charter for a new bank, 
or for enlarging the capital of an old one, — to the mode in 
which the newly created stock is distributed among the 
parties who are desirous of obtaining it, — to the contrivances, 
put into execution by many of those who have succeeded in 
obtaining a considerable portion of it, in order to give to it an 
artificial and temporary value, — and to the tendency of every 



POLrriCAt ECONOMY. 



183 



enlargement of the banking capital of the country, to induce 
an expansion, and subsequent contraction to a certain extent, 
of the circulating medium, and so too to encourage the spirit 
of speculation and of gambling. 

After what has already been delivered concerning money 
and banking, I need not expatiate at any length on the several 
heads just enumerated. It will be sufficient to say a few 
words only in relation to each of them. 

In the first place, in as much as, under the circumstances 
supposed, the banks have a monopoly of the power of issuing 
paper money of a certain description, — a power equivalent 
also, practically speaking, to that of regulating the currency of 
the country, — every application to the legislature for an 
additional banking capital amounts to the applying, on the part 
of an association of certain individuals, for privileges from 
the enjoyment of which the great majority of their fellow- 
citizens are to remain excluded. Just in proportion to the 
magnitude of those privileges, that is, in the case under con- 
sideration, in proportion to the profits expected to be made 
above the ordinary profits of capital, will be the earnestness with 
which the legislature will be solicited. All the vices of special 
legisIationwiW ensue in their most aggravated form. Direct and 
open bribery of the lawgivers may be seldom attempted, and the 
attempt, when hazarded, may be for the most part repelled ; 
but there are indirect modes of corruption which will be 
found sufficiently unguarded by conscience or a regard to 
character, to enable those who will venture to employ them 
to accomplish their object, in many cases without any very 
persevering or inconvenient resistance. The parties who are 
chiefly interested in the passage of the proposed law are, quite 
probably, persons of considerable influence in the community; 
and a wealthy corporation, on the supposition of .the law 
actually passing, may have it in its power, by the granting of 
loans or otherwise, to reward the exertions of its friends in its 
behalf, as well as be much more willing to do so, than the 



164 THE PKIIfCIPLES OF 

public generally, or the classes whose interests are likely to 
be injuriously aflccted, would be to serve in any way those 
who are active on their side of the question. Expectations, in 
this state of things, may, it is evident, be easily excited, among 
certain of the members, and especially among the more pro- 
minent members of the legislature, of advantages to be 
conferred by the corporate body which is asked to be created, 
or whose privileges it is proposed to enlarge, — without the 
necessity of making any formal promises, to be fulfilled after 
the services required shall have been rendered. 

One of the modes in which influential men, in and out of 
the legislature, arc apt to profit by the chartering of a new 
bank, is by the opportunity afforded them of subscribing to, or 
of early procuring, a portion of its stock ; which stock very 
seldom fails, soon after the original distribution of it, to rise 
above its par value. But independently of any such improper 
or vicious procurement of bank stock, the fact of there being, 
in almost every instance of the kind, a greater demand for 
bank stock than there is stock to be distributed, will open a 
scene of intrigue and corruption. Such will, at least, be the 
case in any of the modes in which its distribution is usually 
accomplished. 

The value of the newly created stock, I have said, seldom 
fails very soon to rise above par. This is the natural conse- 
quence of the dividends of the banks exceeding generally in 
amount the ordinary interest of money, and of the new bank, 
before long, obtaining its proportional share of the paper 
circulation of the country. Besides this, however, an artificial 
value may be given to the stock for a comparatively short 
time : and this may be done, not only by the various arts 
which are every day practised by the gamblers in slocks, and 
which it is not necessary for me here to specify, but likewise 
by means of a fictitious demand for the stock before it is dis- 
tributed, — he who is really desirous of subscribing to a hundred 
shares putting in a claim for a thousand, and so on in like 



POLITICAL ECONOMY. 185 

proportion. Moreover, it may be mentioned that, when any 
stock is rising in value, — especially when the rise is a sudden 
and rapid one, — it will, for this very reason, experience a still 
farther rise. People generally will be more desirous than 
they would otherwise have been to obtain it. To purchase it 
now, and to sell it out after a certain time shall have elapsed, 
will promise to be a profitable speculation. And an increased 
stimulus to the corrupt spirit of gambling, as a readier means 
of acquiring wealth than the regular pursuits of industry, will 
be thus administered. I need not mention that the greater 
the rise in value of the bank stock, of which I have been 
speaking, above its real value, the sooner will it be apt to 
decline to this value, and the greater will be the losses of the 
uninitiated possessors of it, who have continued to hold on to 
it rather than sell. 

That every enlargement of the banking capital of the 
country has a tendency to induce an expansion, and subse- 
quent contraction, of the circulating medium, may seem to be 
a proposition scarcely consistent with the doctrine previously 
established, that the circulation which is obtained by a new 
bank is obtained by it at the expense of that of the banks 
before existing. On a moment's reflection, however, the 
apparent inconsistency will disappear. As in many other 
cases in political economy, where our conclusions, legitimately 
deduced, have the semblance of clashing with each other, the 
two effects in question relate to different stages in the progress 
of change ; the effect first mentioned being an intermediate 
or temporary effect ; the other being that which is ultimately 
produced. Where the banking capital of a country is rapidly 
augmented, there can be no doubt that, in the struggle between 
the old and the new banks, on the one hand to retain as much 
of their circulation as they can, and on the other to obtain as 
much of it as possible, the whole circulation will in fact 
become temporarily increased beyond its due or average 
amount ; and the increase may be so great as to be produc- 



18G THE PRINCIPLES OF 

tive, by the contraction of the circulation which subsequently 
ensues, of all the distress and demoralisation already described 
as the infallible consequence of every extensive and sudden 
diminution of the money of the community. 

It must now be manifest that the banks of a country may 
be augmented in number, and its banking capital augmented 
in amount, until the circulation, which each bank can, ulti- 
mately and on the average, possess, will be no more than is 
adequate, by the gross profits yielded by it to the bank, to 
enable it to pay the expenses of management. The whole of 
the capital will then yield to its owners merely the ordinary 
interest of money. And no motive for investing capital in 
banking, rather than in any other business, will any longer 
exist. 



CHAPTER XIV. 

EVILS IMPROPERLY ATTRIBUTED TO BANKS OF CIRCULATION 

FFFECTS OF EXACTING A BONUS FROM THE STOCKHOLDERS OF A 

BANK AS A CONDITION OF ITS BEING INCORPORATED AND 

EFFECTS OF THE GOVERNMENT OF A COUNTRY ASSUMING TO 
ITSELF THE BUSINESS OF BANKING. 

There are two evils which those persons who are most 
opposed to the continuance of our present system of banking 
are in the habit of attributing to it, and of urging against it 
perhaps more frequently than any others ; which evils are, 
notwithstanding, in a great measure, if not altogether, 
unfounded. 

The first of these is that, by the power which the banks 
possess and actually do exert of augmenting the quantity of 
inoney in the country, they cause a general rise of prices, and 



POLITICAL ECONOMY. 187 

thus render it more difficult for the great body of the people, 
—of the poorer classes of the people especially,— to procure 
the means of support to which they have been accustomed. 
That this objection is, as I have said, in a great measure 
unfounded, results from the impossibility of the banks effecting 
more, by the issuing of their paper to an unusual amount, 
than a temporary augmentation of the circulating medium,— 
a proposition which my readers will recognise to have been 
fully, and I hope, satisfactorily estabhshed. But even though 
such augmentation of the circulating medium were perma- 
nent, instead of temporary, it would not follow that any 
portion of the community would have their command over 
the necessaries and luxuries of life in any wise diminished. 
Whatever alterations in this respect might take place while 
that medium was in process of being augmented, on account 
of the prices of all things, including the wages of labour, not 
from the first falling in the same proportion, — eventually, that 
is when prices shall again have become steady, they will 
bear very nearly the same relation to each other, in respect 
to every commodity, as they did before the commencement 
of their fall. 

The second of the two objections, now adverted to, rests on 
the opinion that the profits of banking, over and above the 
ordinary interest of money, is a gain of the bankers, or 
stockholders of banks, at the expense of all other classes of 
the people; and it is therefore an objection which is well 
calculated, wherever entertained, to render our system of 
banking obnoxious to much popular odium. So far from its 
being well founded, my readers will probably be prepared, 
before any farther remarks on my part, to look upon the 
profits of which I speak as a measure, — or at least an approx- 
imate measure, — of the lenefit conferred on the country by 
the substitution of a bank note for a specie circulation, that is 
by the substitution, for the production of the specie dispensed 
with, of that of commodities of a different description. In as 



188 THE PRINCIPLES OF 

much, indeed, as the amount of the whole circulating medium 
is not, 071 the average, aflccted by the action of the banks, 
neither will the prices of things be in any manner afl'ected 
thereby, and money will be procurable (also on the average) 
in the same quantity, as well as on the same terms, as if 
there were no banks of circulation in existence. As no one, 
then, is a loser in the case under consideration, the extraor- 
dinary gains of the banks must necessarily be a national 
gain. 

Since the due appreciation of this argument is a point of 
no slight importance, I shall state one or two modifications of 
which the conclusion come to is susceptible ; and the reason 
will be apparent why 1 have hinted that the profits in ques- 
tion constitute only an approximate measure of the benefit 
which is conferred on the country by the mere substitution of 
a circulation of bank notes in place of one composed of the 
precious metals. I shall make this statement, too, at the 
hazard of repeating perhaps principles, with which the 
reader, at this time, may be perfectly familiar, and which he 
may be able to apply with quite as much facility as the 
writer. 

The bank notes which are put into circulation may not be 
of exactly the same amount with that of the specie they dis- 
place. Because they circulate, on the average, more rapidly 
than hard money, a less amount of them will be able to 
perform the same office ; which circumstance will render the 
extraordinary profits of the bankers a deficient measure of 
that portion of the public gain which is now under considera- 
tion. Again, the various other sorts of paper money, or 
contrivances for economising the use of the precious metals, 
have been stated to be employed somewhJH more extensively 
when no bank notes circulate than when they do. On this 
account, more bank notes can be permanently retained in 
circulation than would be of equal value with the specie 
excluded ; and the profits of the banks, beyond the ordinary 



POLITICAL ECONOMY. 189 

interest of the specie they possess, will therefore err as a 
measure of the kind which has been mentioned, and this 
errour will be in excess. And once more, the introduction of 
a paper money to any extent into the circulation has been 
shown to render unnecessary the production of the precious 
metals under circumstances quite as disadvantageous as 
before; thus reducing the cost of producing them, and conse- 
quently their value, in a very slight degree. This, in its turn, 
will establish a somewhat augmented circulating medium; 
which is the same thing as to say that more bank paper will 
be added to the circulation than there will be specie taken 
from it ; and another errour thus arises, likewise ifi excess. 

Should the interest of money at any time differ from its 
general or average rate, it is plain that the conclusion, into 
the correctness of which I am now inquiring, will not need to 
be therefore subjected to the least modification; for the 
difference between what the borrowers will have to pay to 
the lenders of money for its use, and the average rate at 
which money can be procured, will only be so much, more or 
less, transferred from one set of individuals to another in the 
same country, and will, consequently, not at all afiect the 
amount of national wealth. 

But it may be justly urged that if the extraordinary profits 
in question be, in truth, a national gain, they ought, instead of 
going into the private coffers of the bankers, to be made to 
find their way into the public treasury; and it may be 
asserted that, for this reason, the present state of things 
among us enables those who invest any portion of their 
capital in the business of banking to derive a profit at the 
expense of the community at large. It is to take from the 
bankers these undue monopoly gains that our state legisla- 
tures have generally, on the incorporation of a bank, exacted, 
as the price of so doing, a bonus from the stockholders. Such 
bonus may be made to assume the form of a specific sum to 
be paid into the treasury of the state, on the commencement 

25 



190 THE PRINCIPLES OF 

of its operations by the bank, or at any time or times there- 
after, — or it may consist of a certain proportion of the annual 
profits of the capital to be invested, — or certain loans or other 
financial services may be stipulated for. as a price fur the 
privileges conferred. 

If the expediency of the existence of banks of circulation 
be conceded, and if no other banks than those on which the 
legislature has specially conferred the power to do so are 
permitted to issue paper money, — the objections to the 
receiving of a bonus by the state, on the incorporation of a 
new bank, and, of course, also on the enlarging of the capital 
of one already existing, are twofold : it will be apt to induce 
the creation of banking capital much more rapidly than 
would otherwise be the case, for the purpose of thereby sup- 
plying a public revenue, which will put it in the power of the 
legislators to dispense in a certain degree with the ever more 
or less odious measure of taxation ; and it will have a ten- 
dency, quite as much as any other circumstance connected 
with the practical operation of our banking system, to cor- 
rupt the integrity of the legislative body, — a tendency which, 
after what has been delivered in the preceding pages, calls for 
no illustration here. 

All, however, that would be requisite, to guard effectually 
against the too rapid increase of the number of banks, would 
be for the legislature to exact in every case a bonus high 
enough to leave to the stockholders little more than the 
ordinary interest of their money. Were they, too, to exact 
a honus just so large as to leave to the stockholders the ordi- 
nary interest of money, it is manifest that an effectual check 
would be applied to the increase of the banking capital of the 
country, any faster than the general progress of population 
and wealth. 

Another method by which the government can profit 
directly from the extraordinary gains of banking, is, as has 
sometimes been done, to assume to itself the business of a 
banker. The directors of the banks will, in such case, be 



POLITICAL ECONOMY. 191 

public officers appointed by the legislature, or by some authority 
emanating from the legislature ; and the net proceeds of those 
institutions may be appropriated to meet the various demands 
on the public treasury. This system of banking is especially 
objectionable because of its exceedingly great liability to the 
being perverted to party-political, or still worse purposes. 
Skilfully wielded by those who are in the possession of the 
chief influence in the state, it cannot fail to be a most efficient 
engine for the prolongation of their power, considerably 
beyond the period when they shall have ceased to enjoy the 
confidence of the people. And this assertion will not appear 
to be an unfounded one to any of my readers who reflect 
that, not only in the case supposed, does the government, as 
has been mentioned, possess the direct patronage resulting 
from the appointing by it of all the directors of the banks, but 
that it also exerts indirectly the whole of that patronage 
which is connected with the power of discounting, or of 
refusing to discount, the promissory notes of individuals, as 
the directors of the banks may, in their discretion, choose. 

Here I may make the general and quite obvious remark, 
that in order to prevent the monetary system of a country 
from being employed by the government, as a political instru- 
ment, to enable it to maintain itself against the legitimate 
opposition of public opinion, it is in a high degree desirable 
that -the system should be as little under its control as is prac- 
ticable, consistently with the public interests. 



192 TU£ PRINCIPLES OF 



CHAPTER XV. 

COMPARATIVE ADVANTAGES AND DISADVANTAGES OF MANY OR OF A 
FEW BANKS OF CIRCULATION REMARKS CONCERNING A NATION- 
AL BANK AND CONCERNING A FREE TRADE IN THE BUSINESS OF 

BANKING. 

A QUESTION of some moment, in the actual organisation of 
the American banking system, is, — whether, with a given 
amount of capital invested in the business of banking, a 
smaller or a larger number of banks is the preferable arrange- 
ment. I reply, that, provided their number be not multipHed 
to such an extent as to increase unduly the expenses of bank- 
ing, there seems to me to be the following reasons in fa'oau.r 
of many banks ; first, that the advantages, whatever these 
may be, of the system, would then be more equally diffused 
throughout every portion of the country ; secondly, that the 
check to the over-issue of paper money by the several banks 
will be greater than if, on account of the smalhiess of their 
number, they had a greater facility of combining together ; and 
lastly, the undue influence, political or social, of wealthy monied 
corporations, would be diminished, or entirely removed. On 
the other hand, however, we have, to set in opposition with 
these advantages, the following disadvantages. First, it is 
well known to be the general fact, that the directors and 
officers of the smaller of the incorporated banks have not 
generally the same practical skill in banking, as is possessed 
by the managers of the more extensive institutions of the 
kind ; and we must therefore infer that, when the number of 
banks is augmented, and the capital of each of them is, on the 
average, lessened in amount, the danger of improper manage- 
fiient will become proportionally greater. Secondly, although 



POLITICAL ECONOMY. 193 

the greater the number of independent banks in a community, 
the more efficiently will they act upon one another to prevent 
a larger issue of paper money by any one of them than its 
proportional share of the whole paper circulation of the 
country, it seems to me that the general tendency to an expan- 
sion of the currency, to be succeeded of course by a contrac- 
tion of it, is much more considerable where many than where 
a few banks are competing with each other to obtain as large a 
portion of the circulation as they respectively can. And 
thirdly, when banks are very much multiplied, they are apt 
to be established as well in places where there is little, as 
where there is much trade ; and, in consequence, the farmers, 
as well as others whose capitals are not turned as often as 
that of the merchants, are tempted, by the facilities afforded 
them by those institutions, to become indebted to them, thus 
preparing the way, in the event of a curtailment of bank 
accommodations being rendered necessary, for embarrass- 
ment, and perhaps ruin, to themselves and famihes. To these 
disadvantages may be added, in Xhe fourth place, the greater 
probability of bank notes being counterfeited when they are of 
many different descriptions than when they are of a few. 

There are two portions of the community who will be disposed 
to decide very differently, on a comparison of the advantages 
and disadvantages which have been enumerated. I mean the 
friends of a national bank, and the advocates of a/ree trade in 
banking, that is of permission being given to all individuals, or 
associations of individuals, to engage in the business of banking, 
at their pleasure, as they are at present permitted to engage in 
every branch of mercantile employment. The former class look 
upon a bank having a large capital, with branches distributed 
through the different states composing the Union, as not only 
adequate to regulate the currency, by restraining the circula- 
tion of the numerous state banks within their due bounds, 
but as absolutely indispensable to protect the community from 
the evils which these would otherwise inflict upon it. 



194 THE PKINCirLES OP 

The propriety of a bank of this description being chartered 
by the general government (on the supposition of the contin- 
ued existence of our present banking system) will depend on 
the praclicability of constituting it in a manner to be less 
likely to cause a derangement of the money market, than the 
institutions are whose unsteady action it is appointed to regu- 
late. And the propriety of tlie chartering of such a bank will 
depend, farther, upon the degree in which its action, as a 
regulator of the currency, renders it of advantage lo the 
country. The advantage, in this respect conferred by it, 
should, in order to justify its incorporation, be at least consi- 
derable enough to overbalance the objection to it which is 
founded on the probability of the social or political influence 
which it may, and perhaps cannot but possess, being inipro- 
perly exercised. This is all that I deem necessary to be said 
here concerning the expediency of incorporating a national 
bank ; and the question of the constitutionality of doing this 
does not belong to the subject of the present treatise. 

With respect to a free trade in banking, it appears to me 
very evident that all the disadvantages which have been 
specified, of the multiplication of banks of circulation, would, 
in consequence of its introduction, be carried to an extreme. 
Paper money, of even the smallest denominations of value, 
would be, in every village, and in every neighbourhood, 
issued profusely, and not by the most responsible individuals 
only. The specie of the country would thus be expelled from 
the circulation ; which, I may say, would necessarily fall into a 
state of complete anarchy. In so far also as, — on the occur- 
rence of a suspension by the banks of specie payments, and the 
consequent practical repeal for a time of the laws against the 
general issuing of paper money, — experience among ourselves 
of the readiness with which the promissory notes of compara- 
tively irresponsible associations of men, and even of irrespon- 
sible individuals, have entered into the circulation, throws light 
on what would take place in a state of things were every one 



POLITICAL ECONOMY. 195 

would be at full liberty to put forth his notes on the condition 
of paying them in specie on demand, — my reasoning v\ ill 
acquire additional force. 

In objecting to a free trade in banking, so long as every 
hanker is permitted to add to the paper money of the country, 
I make no account of the evils manifestly resulting from the 
act, or process, of introducing it. Here, as in almost all the 
cases which can, by possibility, come under the cognisance of 
the political economist, the evils, incidental to a transition from 
one state of things to another, can be almost entirely avoided 
by simply making the transition sufficiently gradual. 



CHAPTER XVI. 



LIABILITY OF A CURRENCY TO BE MORE EXPANDED OR CONTRACTED, 
ACCORDING AS IT CONSISTS IN A GREATER DEGREE OF PAPER 
MONEY INFERENCE TO BE DRAWN. 

On a review, now, of all that has been stated, in the present 
book, concerning the relative advantages of a bank note and 
of a metalhc currency, I am not sure that I would not prefer 
one composed exclusively of the precious metals, if no other 
choice presented itself excepting a currency like that which 
exists, or to speak more correctly, like that which existed in 
the country previous to the late suspension of specie payments, 
with all its liability to give occasion to such an event. 

But our choice is fortunately not confined to so narrow 
bounds. By prohibiting the circulation of bank notes of the 
smaller denominations, we would have a mixed currency ; 
which we may readily conceive to be preferable to one com- 
posed either exclusively of paper money, or exclusively of the 



IDO TUE PRINCIPLES OF 

precious metals. In proportion as the paper part of tlie cur- 
rency is diminished in amount, will the whole of it possess in 
a less degree the elasticity of a medium of exchange that is 
supplied altogether b}' the banks. An extraordinary demand 
for specie to be exported abroad, or for any other purpose, 
will not rccjuire so great a curtailment of bank accommoda- 
tions. Here, however, it may be said that the supposition of 
a mixed currency being preferable to one altogether metaUic, 
implies a superiority of paper over hard money, and conse- 
qiientlv, whatever this superiority may amount to, that it will 
be augmented just according as the currency approaches to a 
purely paper condition. If this view then, of the nature of a 
mixed currency, be a correct one, we shall be again reduced to 
the dilemma of choosing between an exclusively metallic and 
an exclusively paper currency. That it is not a correct one, 
I shall endeavour to make distinctly appear to the reader. 

While the advantages which paper money possesses over 
hard money in other respects, — granting, for the present, an 
excess of advantages above disadvantages to exist in the case, 
— will be proportional to the quantity of paper money in cir- 
culation ; there is one disadvantage necessarily to become of 
greater account than in proportion to the augmentation of 
such money. In order to explain the disadvantage to which 
I am adverting, let us look at an instance or two of an aug- 
mentation of it occurring. Let us, first, suppose the specie 
circulating in a particular country to amount to a million of 
dollars, and the paper money to be a like sum in bank notes 
of the higher denominations. If in this state of things, a 
demand for $100,000 in specie be made, that it may be 
exported from the country, or for any other purpose, the 
circulation will be diminished to a greater extent than that 
sum ; and although there may be but few of my readers who 
will not be prepared to assent at once to the correctness of this 
result, — for the sake of these few, I shall exhibit the steps by 
which it will be brought about. The sum required will not 



POLITICAL ECONOMY. 



197 



be wholly taken from the specie in circulation, but a part of 
it will be drawn from the banks. For were the specie alone 
which circulated reduced in amount, the consequence will be 
that an undue amount of the whoie circulating medium would 
consist of bank notes. A demand would be made upon the 
banks for specie in exchange for a portion of them ; by which 
means the proper proportions would be again restored between 
the different kinds of money. But, it is scarcely necessary to 
remark, from the very moment when the demand of which I 
first spoke shall have occurred, specie will be drawn from the 
banks, as well as from the specie actually circulating, to supyjly 
it ; and the proportion of hard money to paper money will be 
preserved nearly uniform, during the whole period of the 
abstraction of the specie demanded. How much of the specie 
abstracted will be taken from what is in circulation, and how 
much from the vaults of the banks, will depend on the propor- 
tion which the whole of the specie in the possession of the 
banks bears to the amount of it which circulates. In the case 
I have supposed, if we assume the specie of the banks to 
amount in value to one half of the notes they have issued, it 
will appear, by a very simple calculation, that a third part of 
the specie required, or |33,333 will be drawn from the banks, 
— that the paper circulation will be, consequently, $66,666 
less than before, — and that the whole circulation will be 
reduced $133,333. 

Now let us examine another instance. Still supposing the 
specie demanded to amount to $100,000, and the whole cir- 
culating medium to two millions of dollars, and supposing also 
the same proportion as in the preceding instance of the circu- 
lation of the banks to the specie on which it is based, namely 
that of two to one, — let the specie circulating amount to two- 
fifths of a million, and the paper money to a million and three- 
fifths of a million of dollars. The like calculation as before 
will shew us that the $100,000 in question will be taken, one 
third from the specie circulation, and two-thirds from the 

26 



108 THE FBINCIFLES OF 

specie of tlie banks, and tlial the whole sum by which the cir- 
culation will be lessened will amount to S10G,GGG. 

If we compare together the two instances which have been 
slated, of tlie cirects produced upon a mixed currency by the 
occurrence of an extraordinary demand for specie, and note, 
besides, tliat the contraction of the currency, if this had con- 
sisted only of specie, would have amounted just to $100,000, 
the following inference will present itself, — that the additional 
contraction of it, resulting from the substitution of bank notes 
in the place of specie, is not greater merely in exact proportion 
to the augmented quantity of the paper money in the currency, 
but that the extent of the contraction increases more rapidly 
than the quantity of paper money does. The same inference, 
too, may be deduced from a comparison of any other instances 
of the kind which may be examined. Conversely, we may, 
of course, infer that the expansions to which a mixed currency 
is liable, beyond those of one consisting entirely of specie, will 
augment more rapidly than the bank paper which may be suc- 
cessively substituted for specie in tlie currency. 

The conclusion follows that, however the advantages may 
otherwise preponderate over the disadvantages of a circulation 
of bank notes, we have here a reason why the community will 
be liable to suffer inconveniences, and will therefore from time 
to time actually suffer them, to an extent nwre than propor- 
tional to the paper money substituted in the circulation for 
specie. And we are now entitled to consider the proposition 
as proved, — that, very possibly^ a currency composed, in cer- 
tain proportions, of specie, and of paper convertible into specie 
on demand, may be preferable to one containing either less or 
more of specie. 

This proposition, indeed, would still hold good even though 
the liability of the currency to extraordinary expansions and 
contractions, arising out of the substitution of paper money 
for specie, did not increase any faster than such substitution ; 
and for this reason, that a double contraction of the currency, 



POLITICAL ECONOMY. 199 

as every practical banker or man of business knows, is pro- 
ductive of much more tiian a double amount of inconvenience 
and distress, among the merchants, and the community at 
large. 

But notwithstanding the possibility has been established of 
a mixed currency, of a paper money issued by the banks and 
of specie, being of more advantage to a country than one of 
either of these separately, it would be very difficult to prove, 
a priori, that such is in fact the case. With all our experience, 
also, on the subject of banking, we find the opinions of the 
most intelligent men in the community ranging through the 
whole extent of the interval between an exclusive bank note 
and an exclusive specie circulation. And, indeed, to determine 
the peculiar constitution of the most desirable currency, 
whether composed in part of bank notes or not, — having an 
especial regard to the rendering a given portion of it, as nearly 
as possible, always of the same value, — is, at present, truely the 
great desideratum in our science. It may be added that the 
difficulty of doing this can only be adequately appreciated by 
those who have made political economy their particular study. 
They too, will hesitate to pronounce a positive judgment con- 
cerning any course of legislation which may be proposed for 
the purpose, where the mere zealots of a party will be prompt 
to dogmatise on the subject. 



200 THE PRINCIPLES OF 



CHAPTER XVII. 

THE MOST DESIRABLE CIRCULATING MEDIUM FOR THE UNITED 

STATES. 

An expression of opinion on the problem of the most dcsira- 
bb c'rculaling medium, more particularly in reference to the 
United States, will, naturally enough, be expected from a 
systematic writer on the theories of money and of banking, 
and in a work published at a period when so large a portion 
of the public attention is directed to those theories, in their 
especial bearing, also, on the problem in question. I shall, 
accordingly, state the result of my reflections on the subject ; 
leaving it to the careful and unprejudiced consideration of my 
readers. 

In view of the difficulties which have been stated of other- 
wise guarding the community from the disastrous effects of 
frequent and extraordinary contractions, and expansions to be 
followed by contractions, of the currency, an opinion has been 
gradually gaining ground in Great Britain of the expediency 
of there being but a single issuer of paper money, — of paper 
money, I mean, exclusive of the ordinary mercantile paper 
which every whei-e constitutes to a certain degree the 
medium of exchange. A writer in one of the leading journals 
of that country has suggested that the single issuer should there 
be the Bank of England, acting under the inspection of the 
government ; a commissioner appointed by which to have a 
veto on every additional issue of bank notes that may at any 
time be proposed by the directors. Such an arrangement 
amounts very nearly to the conferring of the exclusive power 
of issuing paper money on the government itself. And I must 
confess that I see no sufficient reason why this power should 



POLITICAL ECONOMY. 201 

not be exercised by it directly, without the intervention of a 
bank. 

When we reflect upon the magnitude of the opposition to a 
national bank in our own country, even when no peculiar 
privileges or power were proposed to be conferred upon it 
than what must necessarily result from the large amount of 
its capital, the utter impracticability may be assumed of 
organising among ourselves any institution of the kind in order 
to constitute it the sole issuer of our paper currency. If a 
single issuer shall ever exist here, it can only be the govern- 
ment of the Union, — and the government of the Union, too, in 
its fiscal capacity. A national bank under the control of the 
government, in which the question of lending or not lending 
to any individual is to be determined by officers appointed by 
it, I need scarcely say would be more objectionable than a 
similar institution where this was to be decided at the discre- 
tion of men of the highest respectability, appointed for the 
purpose by the stockholders. 

The proposed object can, in my opinion, be accomplished 
by simply carrying out the scheme of what has been styled 
the sub-treasury system, — a scheme brought forward, in the 
first instance, for the purpose of removing for the future the 
public funds from the keeping of the banks, and from the 
accidents to which the banks have been shewn by experience 
to be subject. Let the secretary of the treasury be autho- 
rised to issue treasury notes, or drafts upon the treasury, on 
which no interest shall he paid, in payment of the public 
creditor, whenever they shall be preferred by the latter to 
specie ; and on the other hand, let them be received in pay- 
ment for taxes, when the tax payer shall prefer making 
his payments in this manner rather than paying in specie. It 
will be observed that all the discretion which is here allowed 
rests with the public creditor or debtor, and in no respect with 
the government ; whose patronage cannot thereby be aug- 
mented, unless to the extent implied in the appointment of a 



S02 THE PRINCIPLES OF 

very few officers in addition to those already employed in the 
treasury department. This additional patronage, besides, 
must surely be regarded as altogether insignificant in com- 
parison with that which the government may be conceived to 
exercise under any supposablc coiuiexion of it with a number 
of deposite banks. 

Were there no banks of issue in existence, and therefore no 
such things as bank notes, it is easy to understand how the 
treasury notes in question would enter into the circulation, and 
what would determine the extent in which they. would do so. 
Receivable as they would be for taxes, and not bearing any 
interest, there can be no doubt that, in the absence of bank 
notes, their superior convenience to specie for remittance to a 
distance, as well as for making considerable payments, would 
give them a preference with the merchant, and that, for this 
reason, they would in certain parts of the country command 
a premium in the market. So long as this state of things con- 
tinued, while specie would be flowing into the public treasury, 
the treasury notes would be passing into the circulation. At 
length, however, as much of this paper money as was required 
for the convenience of the merchants will have been issued ; 
when, if more of it be issued, it will only be to be speedily 
returned by the tax payers. 

Next, the limit of the government issues having been reached, 
as determined by the convenience of the mercantile commu- 
nity, suppose a demand for specie to occur, and let us see 
what will happen. People generally will choose to pay their 
taxes in treasury notes rather than in specie ; and the credi- 
tors of the government will ask for specie instead of treasury 
notes. The circulation of these last will, in consequence, 
become contracted ; the whole circulating medium being at 
the same time diminished precisely to the extent of the extra- 
ordinary demand for specie. Everything, also, will take place 
jn a contrary direction, on the supposition of a less demand 
for specie than usual. We shall then, manifestly, have a 



POLITICAL ECONOMV. 203 

circulating medium, susceptible of neitlicr more nor less of 
expansion and contraction than one that is composed exclu- 
sively of the precious metals ; and which has this advantage 
over one so composed, that it is more convenient for making 
payments of a large amount, and for remitting money to 
distant places. 

For these advantages in our system of paper money, we 
shall have sacrificed nearly all those which arise from the 
dispensing altogether with the use of the precious metals as 
money, to an amount equal to the value represented by the 
paper substituted instead of them in the circulation. This 
will be the case because the specie withdrawn is retained in 
the coffers of the government, and not, as is usually the case 
on the issue of paper money, diffused throughout the commer- 
cial world. The value of the sacrifice thus made may be 
approximately estimated, as has before been stated, by the net 
profits of the banks of the country above the ordinary interest 
of money, — a sacrifice which, I am disposed to think, will be 
regarded by the reader to be of less account just in proportion 
as he reflects upon the subject. 

But it is not at all indispensable that the whole of the specie 
received by the government should be retained in its posses- 
sion unemployed. One-half, or one-third, or any other pro- 
portion of it, may be employed in purchasing its own 
obhgations, or, when there is no national debt, in purchasing 
the obligations of the difTerent states of the union. The specie, 
thus disposed of, will now take the same course with specie 
which is liberated from the circulation by the issue of bank 
paper ; and the advantage to the country of such a disposi- 
tion of it w^ill be an accession to the national wealth of an 
amount of commodities other than money, equal in value with 
that of the specie whose use has been dispensed with, and 
which, for this reason, will cease to be reproduced. On the 
introduction of the system in question, it would be expedient 
to err in having an unnecessary reserve of specie in the public 



204 THE Pni.XCIPLES OF 

treasury in order to guard cirectually against the contingency 
of the government being obliged to stop specie payments. 
After it had been for some time in operation, experience 
would enable us to determine very nearly what should be the 
minimum amount of specie to be reserved. A circulating 
medium like this would have every advantage which is pos- 
sessed by any that can be furnished by the banks, and without 
any counterbalancing disadvantage. 

Should the plan of issuing it, as above stated, be objected to 
on account of the first issues being proposed to be made on no 
specie basis actually provided by the government, the objec- 
tion could easily be got over by so modifying the plan as to 
require the procuring, in the first instance, by taxation or 
loan, of such a specie basis as is desirable, previous to the 
making of any issues whatever of treasury notes. This 
objection, however, is in my opinion of no weight. Even if 
a certain amount of these notes were to be issued before any 
of the specie to be received in payment of taxes had been 
actually paid into the public treasury, they would have been 
issued on the credit of the government ; and if the expend- 
itures annually authorised by Congress were invariably limited 
by the estimated receipts within the year from the different 
sources of the public revenue, that credit can scarcely be sus- 
ceptible, under any circumstances, of being impaired. 

I have supposed only a certain exact proportion of the 
specie which may come into the possession of the govern- 
ment to be reserved by it in order to secure itself against a 
suspension, on any emergency, of specie payments. But 
if any one prefer the rule to be that the specie reserved 
should be made to bear a certain exact proportion to the trea- 
sury notes which shall have been issued, I would cheerfully 
acquiesce in this modification of my plan. Perhaps, indeed, 
this may be in a slight degree the preferable arrangement. 

To omit any farther mention of objections to it founded on 
the mistaken notion of its having a tendency to add to the 



POLITICAL ECONOMY. 205 

patronage of the executive department of the general govern- 
ment, I know of no others which can be adduced, with any 
plausibility, against the expediency of its adoption, excepting 
such as have reference to the introduction of it in place of 
our existing system of a bank note circulation, of the benefits 
derived from which so many even of our most intelligent 
citizens entertain the most exaggerated opinions, and which 
so many are disposed to identify, most absurdly, as I have 
shewn, with the credit system, — and excepting such objections, 
too, as are founded on its inconsistency Mdth the existence at 
any time of a surplus revenue. 

How to pass from our present bank note circulation to the 
one above described will be a subject of inquiry as we pro- 
ceed. In respect to the system of credit, it may be observed 
that, so far from being in the slightest degree impaired by the 
abolition of banks of issue or of circulation, the greatest 
obstacle will have been overcome to the removal of all 
restrictions on the lending of money ; and there will then be 
no reason why every individual in the community, who may 
think it to be for his interests to do so, might not be permitted 
to engage in the business of hanking, with the exception alone 
of issuing notes payable to the bearer on demand, just as he 
is now at liberty to engage in any other branch of business 
without first asking the consent of the government. 

Objections, to the scheme of a circulating medium, of the 
nature described in the present chapter, which are founded on 
the accumulation of a surplus revenue, and on the consequent 
mass of specie coming thereby into the possession of the 
government, and having to be disposed of by it, need not be 
suffered in the least to disturb us. Not to speak of a disposal 
to be made of the surplus revenue by the purchase of the 
different state obligations or stocks, or what amounts to the 
same thing, by lending to the different states, I may reply 
that, after the experience we have had of the evils of which, 
in more ways than one, a surplus revenue is productive, — 

27 



206 THE PRINCIPLES OF 

although some of these could not again recur if our present 
banking system were abolished, — there ought to be no ques- 
tion among us of tlic propriety of reducing the public revenue 
to the .exigencies of the government, and of thus preventing the 
existence of any surplus in future. And besides this being a 
sufficient reply to the objections now under consideration, — 
that the existence of a surplus revenue should be in any 
degree inconsistent with a fair experiment for supplying a 
better currency to the country, will be an additional reason 
with many for being hostile to the accumulation of such a 
revenue. 



CHAPTER XVIII. 



[ MODE OF ABROGATING THE EXISTING BANKING SYSTEM OF THE 

COUNTRY. 

The remark can scarcely be repeated often enough that, 
however beneficial any proposed change in the policy or 
government of a country may be, it may not unfrequently be 
productive of evils, on its too sudden introduction, which will 
more than compensate the good which it is fitted eventually 
to confer. It is from a forgetfulness of this important princi- 
ple that the more zealous, and, at the same time, inconsiderate 
portion, of the friends of political improvement, are occasion- 
ally ready to plunge into all the miseries of a revolution, when 
the object in view could be much more effectually, and more 
speedily too, attained by the exercise of argument instead of 
violence. Those friends of improvement to whom I have 
been adverting are also apt to forget that it is seldom a change 
of any kind, in the political or social relations of society, can 



POLITICAL UCONOMir. 207 

be beneficially carried into execution, before public opinion, or 
at least that of a majority of the individuals who are chiefly 
concerned, can be induced to declare decidedly in its favour. 
And there is, besides, another reason which should always 
operate, with the intelligent and philanthropic portion of the 
community, to check every disposition on their part to disturb 
too rapidly the subsisting condition of things around them ; — 
I mean the very natural tendency of the minds of most men 
to confound the immediate with the ultimate effects resulting 
from the action of any cause. By advancing without suffi- 
cient cautJAfi, even in the right direction, the " evils of change" 
may, quite possibly, be of such magnitude, and endure so 
long, as, in consequence of this tendency, to generate a feeling 
in the community adverse to the most desirable alterations in 
government or policy, and sometimes to constitute a pretext, 
if not a real ground, for a reaction in a direction opposite to 
the true one. On the contrary, let any one only appreciate 
and be guided by the considerations which have been exhibited 
for not changing rashly the established order of society, and 
though he should be an extreme " radical" in his political 
opinions, — if, indeed, this epithet may not be regarded as mis- 
applied to such a person, — he might, notwithstanding, be more 
of a " conservative" of every thing truly deserving of con- 
servation, than are those rigid conservatives, so called, who 
exclaim vehemently against every proposed abrogation of 
abuses, however flagrant these may be, as an act of treason 
to the public welfare. Such men are often the most efficient 
revolutionists. They are to be found constantly occupied in 
revolting the feelings of the people among whom they live, 
and in thus diflfusing a more general spirit of opposition to all 
existing institutions. 

Bearing in mind the observations which have just been 
made, I observe that it would not be difficult to pass from 
our existing banking system to a purely metallic currency, ox 



208 THE PRINCIPLES OF 

to the monetary system which has been recommended in the 
preceding chapter. 

First, the legislature of each of the states may prohibit, at 
the outset, the circulation, after a certain date, of all bank 
notes of the lowest denomination which is actually permitted 
to circulate. It might then prohibit, after an interval, the 
circulation of bank notes of the next denomination above the 
lowest. And so it might go on, until the occupation of the 
banks, as banks of circulation, was wholly taken from them ; 
the whole process being extended through such a period as to 
prevent the community from being subjected to am^ extraor- 
dinary inconvenience, and to avoid infringing upon any riglits 
which the banks may possess under their existing charters. 

Secondly, the legislatures of the states, while they shall 
refuse to incorporate any new banks, may also refuse to renew 
the charters, as they expire, of those already existing ; or, 
where they expire in too rapid succession, they might be 
renewed for a suitable period only, the capital of each bank 
being, at the same time, reduced in amount. Every precau- 
tion, too, should be taken against the over-issues of those 
banks which shall be the last to exist. For in the process of 
reduction, the banking capital of the country, — especially if 
the treasury notes in circulation should be only of the higher 
denominations, for which, however, there is not the least 
necessity, — may be so small in comparison to the amount of 
specie which circulates, as to tempt the banks to issue their 
notes imprudently, and to incur the hazard of becoming 
bankrupt. But if the withdrawal of the smaller denomina- 
tions of bank notes shall be made to keep pace with the 
diminishing of the capital employed in banking, the proba- 
bility of any thing of the kind just mentioned taking place 
will be little greater than it is under ordinary circumstances. 

Thirdly, a bonus, say in the form of a per centage on its 
capital, may be exacted on the incorporation or re-incorpora- 



POLITICAL ECONOMY. 209 

tion of every bank ; and if the profits of the bankers, over 
and above the per centage exacted by the government, should 
be only equal to the ordinary interest of money, no motive 
would exist for investing any more capital in banking rather 
than in any other business. Hence, it is evident, the bonus 
exacted might bo so adjusted, that bank after bank should 
cease its operations, and eventually none should remain. The 
objection to this mode of extinguishing our present banking 
system is, that, in the latter stage of the process, the temp- 
tation to the banks would be very great to issue their notes so 
extensively as to impair their credit, in order that they might 
thereby be enabled to realise enough to yield to the stock- 
holders the ordinary returns, after providing for the increased 
demands of the government. This temptation may, indeed, 
be met by extraordinary precautions and penalties, to be 
applied by the legislature. Since, nevertheless, it cannot but 
be stronger than any temptations to which the banks would 
be subjected in the mode just before described of getting rid 
of them, that mode must be regarded as the preferable one of 
the two. 

When the new currency shall have been, thus gradually, 
substituted for the notes of our present banks, it may be men- 
tioned that the banks (of deposite and of discount) which will 
remain, and which, on the principles of an unrestricted com- 
petition will be multiplied in number according to the wants 
of the community, will, in addition to the pecuharity of their 
issuing no paper money of their own, transact the deposite 
part of their business differisntly from what is now universally 
the case in the United States. Owing to the monopoly of 
privileges enjoyed by the banking institutions of the country, 
none of them find it necessary, for obtaining the deposites of 
individuals, to pay them any interest for their money. But 
under a system of free trade in banking, — as banking would 
then be understood, — while the bankers will be charging the 
market rate of interest for the money which they lend out to 



210 THE PRINCIPLES OP 

Others, they will, very naturally, be willing to borrow money 
from those who may have it to lend, or, what is the same 
thing, to receive the dcposiies of individuals, at a somewhat 
lowei rate of interest. This is, in fact, the general practice 
throughout the continent of Europe. 

If any of my readers have still doubts concerning the 
expediency of a free trade in banking, and in money generally, 
when the banks shall have been deprived of the privilege of 
issuing promissory notes payable to the hearer of them on 
demand, his doubts, I hope, will be'entirely dissipated before 
he shall iiave finished the perusal of the present booh. 

I have said that it would not be dilTicult to pass from our exist- 
ing banking system to a purely metallic currency, or to one 
composed in part of the precious metals, and in part of treasury 
notes or drafts. The difficulty alluded to was of a politico- 
economical description. Political difficulties, however, inter- 
vene, of a nature, practically speaking, altogether insuperable 
without an alteration of the constitution of the United States. No 
one of the states can be expected to abolish the existing banking 
system, or even to take many steps in prohibiting the issue of 
bank notes of the lower denominations, so long as the same 
measures are not adopted contemporaneously by the other, 
and especially by the neighbouring states. Though New 
York, for example, were to act in the manner suggested, the 
paper money of New Jersey or Connecticut might circulate 
extensively in the former state, in the place of the bank notes 
excluded ; and the intended effect might, in consequence, only 
very partially ensue. But this is not all. The profits of banking, 
beyond the ordinary returns to the capital, properly so called, 
of the banks which operate within its bounds, will be transferred 
by the state of New York to those of Connecticut and New 
Jersey, without any advantage being derived by it in return, 
— with the disadvantage, indeed, of its possessing a less 
secure currency than it had before ; — less secure because such 
a currency circulates at a more remote distance from the 



POIITICAL ECONOMY. * 211 

source whence it is issued, and is therefore liable to be issued 
more abundantly than its specie basis will justify ; and less 
secure, too, because it will be more subject to being counter- 
feited than a paper money which is payable nearer home. 

The obvious and the only remedy, for the difficulties just 
considered, lies in an amendment of the constitution, which 
shall take from the states the power of incorporating banks of 
circulation, — and which, in my opinion, ought equally to pro- 
hibit the issuing, by individuals or companies of individuals, of 
a paper currency, or, in other words, of promissory notes 
made payable to the hearer in specie on demand. 



CHAPTER XIX. 

SUSPENSION OF SPECIE PAYMENTS BY THE BANKS. 

In discussing the subject of banking, I have supposed the 
banks to be held strictly to the obligation of paying specie for 
their notes on demand. But such has not always been the 
case. As well in Great Britain as in the United States, a 
suspension of specie payments on their part has occurred, and 
has continued for a considerable time ; — in the former country, 
by means of an act of parliament, for so long a period as from 
1797 to 1822 ; and in the latter, from 1814 to 1817, without 
the direct interposition, for the purpose, of the legislature, — 
which had, indeed, no constitutional authority to loosen the 
obligations of creditors to their debtors, but yet as a conse- 
quence, in a considerable degree, of the measures adopted by 
it in a tjme of war.* 

* This was written before the suspension of specie payments by our banks in 
May of the last year. 



212 * THE PRINCIPLES OF 

Before the first occurrence of such a suspension of specie pay- 
ments, an impression prevailed very generally, even among that 
portion of the community who might be thought to be the most 
competent judges of tiie matter, that the credit of bank notes, 
if not entirely prostrated by such a measure, vv'ould be exceed- 
ingly depreciated by it. On the contrary hovi'ever, the notes 
of the Bank of England continued for some time to have a 
market value, when compared with gold and silver, not very 
different trom their former and professed value. An immediate 
inquiry into the causes of this extraordinary phenomenon very 
naturally took place ; and not only were those causes satis- 
factorily traced and explained, but the science of money, as 
of political economy in general, then received a renewed 
impulse. 

Those of my readers who have made themselves masters 
of the preceding chapters of this book will find no difficulty in 
comprehending how it is that, when the banks refuse to pay 
specie for their notes, these may, notwithstanding, continue to 
circulate, and to perform all the functions of money, without 
Iheir value being in any remarkable degree, and indeed with- 
out their value being in any the slightest degree, injuriously 
affected. To make this quite apparent, it will suffice for me 
to repeat, that, from the very nature of banking, the immediate 
payment in specie of all the bank notes in circulation, on being 
presented by their holders for the purpose, would be an 
impossibility ; and that they are, in despite of this circumstance, 
regarded as equivalent to specie, and as, generally speaking, 
a more desirable circulating medium than specie. It will be 
recollected that their credit, in reality, rests on the whole 
amount of the -property supposed to be owned by the parties 
who issue them, as also on the comparative rapidity with 
which the value of that property can be realised in money, and 
a speedy redemption of the notes by this means secured. 
This last condition too, it is evident, may be overlooked, pro- 
vided the former exist to a sufficient extent, and provided, 



POLITICAL ECONOMY. 213 

moreover, there is no exception to the general non-payment, 
by the banks of a country, of specie for their notes. The 
superior convenience of bank notes will, in general, secure 
their continued circulation, without their depreciation in value, 
until they are issued so abundantly as to expel all the specie 
previously circulating. 

The suspension' of specie payments will, however, take from 
the banks every motive, short of an apprehension of impairing 
the confidence of the community in their stability, to limit 
their issues of paper money. 'The checks too, which are 
administered by them to one another, will be almost entirely 
removed,— founded chiefly, as those checks were shewn to be, 
on the convertibiUty into specie of the notes of each bank. 
As a consequence, the country will be flooded, and unequally 
so, with paper money. And notwithstanding the possibility, 
above exhibited, of bank notes not depreciating after they 
have ceased to be convertible into specie, they will infallibly, 
sooner or later, in fact suffer depreciation, unless some other 
checks to their being unduly issued be apphed, in place of those 
which have ceased to operate. 

On account of the existence in Great Britain (through the 
influence of the government on the Bank of England, and, in 
its turn, of the bank of England on the country bankers) of 
other checks to the extravagant issues of paper money, in a 
degree considerably greater than in the United States, — at the 
periods of the respective suspensions of specie payments in 
the two countries, — the depreciation of the bank note currency 
at no time extended as far in the former country as it, in most 
instances, did in the latter. 

By the depreciation of paper money, it has been intended to 
denote its depreciation below its nominal value in specie. But 
here we may be reminded of the possibility of specie, or what 
amounts to the same thing, of bullion, ajjjjreciating in value ; 
and that the depreciation of the paper money may therefore 
be, either wholly, or in part, merely apparent. A case can 

28 



214 V THE PRINCIPLES OF 

easily be imagined of a simultaneous change in opposite 
directions in the value of the inconvertible paper money, and 
in that of gold and silver. An extraordinary enhancement 
of the value of these metals may have taken place on the 
failure of their supply from the more fertile mines, in conse- 
quence of the long continuance of civil commotions in the 
region where these mines are situated, as was the fact in 
Mexico and in South America, during a considerable period 
in the present century ; — or it may for a certain time be 
owing, and this in no slight degree, to the breaking out of an 
extensive war among the principal nations of the world. The 
etiect of its occurrence on an inconvertible paper currency will, 
of course, be to make that currency depreciate in value when 
compared with the value of bullion. And should the banks, 
in this state of things, issue an unusual quantity of their notes, 
there will also be a real depreciation of them. It must, 
however, be quite obvious that the possibility 6{ the deprecia- 
tion being real only in part cannot affect the correctness 
of the conclusions which have been deduced, as to the 
tendency of all inconvertible paper money to be issued in 
excess. 

As the banks of a country increase their circulation, will 
their gains be likewise increased. When, therefore, the check 
of being obliged to pay specie for their notes is once removed, 
there will be no desire on their part to have it replaced, and 
no efforts will be made by them voluntarily to resume specie 
payments. To bring about this measure, they must be 
operated upon from without. The only forces, too, which 
can be effectually invoked for this purpose are the force of 
public opinion and that of the legislature ; and the former of 
these merely on account of its influence on the action of the 
latter. A remote expectation or apprehension of what the 
legislature may possibly do to their prejudice will scarcely 
accomplish more with the banks than to induce them not to 
carry their expansions beyond a certain amount, — an amount 



POLITICAL ECONOMY. 215 

already much too large. In order to compel them to contract 
their issues and to resume specie payments, the legislative 
bodies, whose creatures they are, will, in most cases of the 
kind, find it necessary to pass some act imposing a pecuniary 
penalty upon them, or declaring their charters forfeited, in 
the event of their not resuming specie payments by a certain 
day, and of their not thereafter continuing uninterruptedly to 
make payment of their notes in specie. It is the province, I 
may add, of our different state legislatures, acting separately 
or in concert, to control the circulation of the paper money 
which they have authorised ; and it will be time enough for 
the community to look to the Congress of the United States, 
rather than to them, for bringing about a return by the banks 
to a payment of their notes in specie, after payment of their 
notes has for a while failed to be made, when the states shall 
have resigned the power they have hitherto exercised of 
incorporating banks of circulation, and the government of the 
Union shall have assumed to itself the regulation of the cur- 
rency of the whole country, agreeably to the spirit and intent 
of our existing Constitution. 

Some individuals who have entertained exaggerated notions 
of the advantages derived to a community from the substitution 
of a paper for a metallic currency, and who have been desirous 
of still farther multiplying those advantages, by dispensing 
with the necessity of retaining any specie in the banks for the 
purpose of redeeming their notes, have occasionally pro- 
posed various plans for carrying on the business of banking, 
so as to maintain a bank note circulation professedly not 
subject to be redeemed with specie. A favourite plan has 
been to issue notes representing property in land, and to limit 
at the same time the notes issued to a certain amount, when 
compared with the property represented by them. There are 
several objections to the execution of every such scheme. 
The most important one, — one, also, which may be regarded 



216 THE PRINCIPLES OF 

as of itself decisive against it, — is llic practical difliculty of 
maintaining the linnit prescribed to the amount of the issues 
to be made. Should it be argued that laws may be passed, 
with sufficient penalties annexed to them, to prevent the 
parties who shall be authorised to issue paper money, from 
going beyond the prescribed limit, the reply is that the danger 
to be apprehended exists chiefly in a very different quarter. It 
is the government, whether of the states or of the whole Union, 
as the case may bc,*which is likely to be the great trespasser. 
Banking privileges, of the kind now under consideration, will 
be asked of it without end, and inducements for granting 
them will be held out which it will be scarcely able to resist ; 
and the circulating medium will thus be continually extended, 
and a given portion of it, therefore, more and more depre- 
ciated in value. This will happen, too, almost as fast as if 
the government had exercised the power of emitting bills of 
credit without any limitation as to quantity. 

To what has been mentioned concerning a circulating 
medium not based on the precious metals, and in no wise 
representing them, I may add that, if its introduction were 
practicable, as well as in other respects to be desired, there is 
one advantage those metals would have over it, — an advan- 
tage that would, of course, be partaken of by every currency 
representing them, — which might, notwithstanding, turn the 
scale in their favour. Perhaps of all commodities, gold and 
silver are those whose value is the least subject to variation 
during comparatively short periods of time, such as a few 
years. This circumstance fits them, in a pecuUar manner, to 
become the measure of value in the case of almost all con- 
tracts. And indeed, even though the circulating medium 
should be constituted wholly of paper money having no direct 
reference to either gold or silver, it would be expedient, with 
a view to guard as much as possible against the necessity of 
discharging the contracts which have been entered into by 



POLITICAL ECONOMY. 217 

the payment of a less oi" of a greater value than that bargained 
for, to specify particularly that they should be discharged with 
specie or bullion. 



CHAPTER XX. 



DEBASEMENT OF THE CURRENCY. 



It is not only by their action on the banking system of a 
country that the rulers of nations have interfered with the 
medium for exchanging every thing else. They have, not 
unfrequently, exercised their prerogative of coining money, 
so as to free themselves from the obligation of discharging 
the full amount of the debts incurred by them, or by their 
predecessors in the government, for professedly public or 
national purposes. The name before applied to a piece of 
money, containing a certain quantity of gold or silver, has 
been subsequently applied by them to one containing only a 
half, a tenth, or even a less proportion of tho^e metals. 

That it would be a fraud on the part of the government to 
pay its creditors, and to enable debtors generally to pay their 
creditors, in coins which have been debased in the manner 
described, must be sufficiently obvious to the reader to require 
no illustration. 

Latterly, however, governments have preferred, when 
pressed by financial difficulties, and when they have not 
been over-scrupulous to avoid any hazard of violating the 
rights of the national creditor, to issue hills of credit, or, in 
other words, to pay for the services of the persons in their 
employ, as well as for the purchases they may require to be 
made, by promises in writing to pay a certain amount of 
money at some future day. Bills of this description, — call 



218 THE PRINCIPLES OF 

them treasury notes, assignats, or by whatsoever other name, 
— arc necessarily hablc to be issued to the same, or even a 
still greater excess, than is an inconvertible hank paper- 
money. This last must, at least, be the case if the banks be 
not in a certain degree, or wholly, under the immediate 
control or management of the government. According as 
such bills of credit are issued to an extent ever greater and 
greater, they will become more and more depreciated in 
value ; and although the government of a country may, for a 
limited time, find in the employment of them extraordinary 
resources, they will at length be so much depreciated as to 
render it absolutely necessary to recur to taxation exclusively, 
in order to provide for the public expenditure. I say to taxa- 
tion exclusively, because it is manifest that when a govern- 
ment, in the general opinion, is so utterly bankrupt that its 
promises to pay are regarded as of little or no value, it will 
certainly be altogether out of its power to procure a loan 
from any quarter whatever, — at least any but forced 
loans, which is merely another name for a certain unequal 
species of taxation. 



CHAPTER XXL 

ON" THE INTEREST OF MONEY. 

Besides affecting by their legislation the amount of the 
circulating medium, governments have passed laws limiting 
the interest to be received for money to a rate below what it 
would be, or what it would frequently be, if left to be deter- 
mined by a free competition between the lenders and the 
borrowers in the market ; and they have even forbidden 
altogether the lending of money under certain circumstances, 



POLITICAL ECONOMY. 219 

as, for example, has been done by the " restraining laws" of 
the state of New York. After what has been said in the 
foregoing pages concerning money and capital, I need not 
undertake to show that every difficulty thrown in the way of 
their transfer by loan, from one individual to another, 
must tend to retard the progress of national wealth, by 
preventing them from being employed as productively as 
they might otherwise be. 

The legal limitation of the interest of money calls for some 
remark. But it is expedient, in the first place, to understand 
distinctly what the circumstances are which, independently of 
the action of the government, determine the rate of interest. 
I shall, accordingly, now inquire into these. 

If money were never borrowed excepting to be employed 
productively, and if the ordinary profits of capital were the 
very same in all the various branches of industry, the interest 
of money would, obviously, be determined by the rate of 
profits. Were this rate, for example, ten per cent., that of 
interest could not be, and remain, at nine. A dollar upon 
every hundred dollars borrowed by any capitalist would, in 
that case, be acquired by him, as it were gratuitously, beyond 
the compensation which he is entitled to for his labour of 
management, or superintendence, of the capital borrowed by 
him. It is evident that the borrowers of money will then 
desire to borrow it to a greater extent than before, and that 
others who hitherto may have abstained from borrowing will 
compete with them for loans in the money market, until the 
rate of interest shall have advanced to ten per cent. And 
had we, on the contrary, set out with supposing the rate of 
interest to be higher than the ordinary rate of profits, less 
money will evidently be borrowed than before, till interest 
and profits are again brought to coincide. 

But there is not one rate of profits, — natural rate, of course, 
is meant, — in all the various applications of capital. Which, 
then, of the actual rates must be taken as that by which the 



220 THE PRINCIPLES OP 

interest of money is determined 1 I would say the higher 
rates; for if, at any time, the lower rates corresponded with 
the rate of interest, it seems to me there would be no doubt 
that the capitalists who are receiving the larger profits would 
offer to borrow money to such an amount as to cause interest 
to rise. Be this, iiowever, as it may, it is certainly correct to 
speak, in general terms, of the interest of money being deter- 
mined by the profits of capital ; and on the other hand, when 
we are told what the interest for money borrowed is, in a 
particular period or country, we shall have an approximate 
measure, at least, of the general rate of profits. 

I need scarcely mention that I have been taking for 
granted the entire security of property, as well as the non- 
interference of the government with the right of individuals 
to dispose of their property, including money, as they may 
deem to be most conducive to their own advantage. Where 
these conditions ai-e not fulfilled, where the state of society is 
so lawless as to subject the possessor of wealth, and especially 
of moveable wealth, to the depredations of his fellow-men, or 
where the highest interest for the use of money which can be 
lawfully received is lower than the general rate of profits, — 
little or no money will be borrowed, on the supposition of 
money being never borrowed except with a view to repro- 
duction. 

Moreover, if all payments of money for commodities 
purchased were cash payments, the only reason which I can 
conceive for borrowing would be for the purpose of specula- 
tion. When the prices of commodities are expected by the 
speculators to rise, they will desire to purchase more exten- 
sively than usual, and they will make a greater demand for 
money. On the principles of supply and demand, the interest 
to be paid for its use will, in consequence, be temporarily 
enhanced. An opposite eflect will ensue from an expectation 
of a fall of prices. These temporary effects, occurring, as 
they will do, sometimes in one, and sometimes in another, of 



POLITICAL ECONOMY. 221 

two opposite directions, can, very plainly, produce no change 
in the average or ordinary rate of interest, determined, as 
this has been shewn to be, by the general rate of profits. 

A certain portion only of the payments of the community 
is, however, made in cash ; which portion, too, is commonly 
less in amount, according as the community has more of a 
mercantile character, and according to the degree in which 
punctuality generally, in the discharge of pecuniary obliga- 
tions, is secured by the laws, or by the influence of public 
opinion. The demand for money, in order to discharge such 
obligations, may cause the interest paid for its use to rise, at 
times, considerably above the ordinary rate; and if the 
government interfere in any way with the business of lending 
money,— either by prohibiting altogether the lending of it 
under certain circumstances, or by the branding of the taking 
of interest, beyond a specified amount, as usury, and annexing 
to the doing so the legal forfeiture of the loan, — the interest of 
money may rise occasionally to a very exorbitant height. It 
must then exceed the interest which would otherwise be paid, 
by the amount of the insurance required to cover the risk of 
the entire loss of the principal lent, and must, besides, com- 
pensate the lender for the loss of social standing and respec- 
tability on account of his having violated the laws of his 
country and become an usurer. In addition to this, it may 
be mentioned here that, on the occurrence of a scarcity of 
money, or on a scarcity of it being apprehended, the interest 
asked for the use of it will advance more rapidly than would 
be the case were an entire Hberty to be allowed to every one 
to do what he chose with his own money ; and after having, 
in the course of its advance, reached the limit fixed by law, it 
will be, obviously, at once enhanced in an extraordinary 
degree. Hence the policy of a repeal of the usury laws, and 
of a free trade in money, as in respect of every other commo- 
dity. 

While, however, avowing myself, in common with every 

39 



222 THE PRINCIPLES OP 

Other political economist, to be hostile to all usury laws, I am 
not an advocate for their absolute repeal, so long as a Umited 
number only of banking institutions exist in a country, pos- 
sessing peculiar j)rivilegcs, and capable of combining together 
to diminish unexpectedly the quantity of money in circulation. 
The demand for it, when compared with the supply, will therij 
very probably, be often such as to cause the rate of interest 
to rise exorbitantly high, and to enable the banks to realise 
thereby very undue gains, at the expense of the unfortunate 
borrowers. To avoid these effects would indeed be easy, by 
limiting the rate of interest which the banks are permitted to 
receive. But there is another effect of an injurious character, 
which, so far from being avoided or diminished in any degree 
by this measure, will become aggravated in consequence of 
it. The temptation, I mean, will be greater, on the part of 
the bank-directors, to borrow money for themselves, or to 
accommodate their friends with money from the banks, in 
order to lend it out afterwards to individuals at a higher 
interest. In this view of the subject, I ought, perhaps, to go 
farther than to say that I am not in favour of an entire repeal 
of the laws against usury, under our existing system of bank- 
ing, — and to express my willingness to acquiesce in the 
continuance of those laws, until the power of regulating the 
currency of the country, by means of the emission of paper 
money, shall be taken from the banks, and an unrestricted 
competition shall also be permitted in the business of lending 
money. 

Where property is insecure, not only will money, as has 
been stated, be rarely borrowed for the purpose of being 
employed productively, but, when borrowed (which it may 
still be to a certain extent) to enable the borrower to fulfil his 
pecuniary engagements or for purposes of speculation, it is 
clear that the interest paid for its use will comprehend, as 
well the insurance against the risk of losing the principal, as 
the interest properly so called, — in accordance with what was 



POLITICAL ECONOMr. 223 

shewn to be the case when the risk of loss arose from the 
operation of usury laws. 

An objection to what has been delivered, concerning the 
ordinary interest of money, may possibly be founded on the 
very large profits which are sometimes asserted to be the 
ordinary profits of the capitalist. While the rate of interest 
is, in a considerable portion of the United States, so low, on 
the average, as six per cent, upon the principal loaned, we 
hear, in the same region, of ten or twelve per cent, profits, 
and, in some instances of mercantile business, such as that 
of the apothecary or druggist, of profits even a good deal 
higher. This discrepance is, however, owing to the occa- 
sional, and indeed very general, confounding, under the 
common designation of profits, of the wages of superintend- 
ence and management with the profits of capital properly so 
called. 

I shall conclude what I have to say on the subject of money 
by noticing an errour, not unfrequently to be met with in 
respectable quarters. There are those who think that the 
interest of money depends upon the quantity of it in circula- 
tion. If, by thus expressing themselves, they merely meant 
that, other circumstances being the same, the interest of 
money would fall temporarily on the quantity of it in circula- 
tion being augmented, their meaning would be open to no 
criticism. Such, however, is not their meaning. They do not 
refer to any mere temporary changes in the rate of interest, 
which may be consequent upon a previous alteration in the 
supply of money. Their notion is that the interest paid for its 
use, — the ordinary interest, — will be high when the average 
quantity of money which circulates is comparatively small, 
and low when that average quantity is comparatively large ; 
and the reason given by them why the interest of money is 
higher in one country than in another, — in the United States, 
for instance, than in England, or in England than in Holland, 
— is that these difterent countries are not all equally wealthy ; 



224 THE PRINCIPLES OF 

which again is the same, with the persons now adverted to, 
as that money in those countries is not equally abundant. It 
must be evident to the reader that this reasoning is unsound, 
as well as inconsistent with the doctrines which have been 
expounded in the preceding pages. The notion in question, I 
may add, has probably arisen from an observation of the 
actual eftcct of a diminution in the circulating medium in 
producing a very extraordinary, though temporary rise, in the 
market rate of interest. And had those who entertain it only 
been, besides, aware of the fact that just in proportion as the 
circulating medium is diminished in quantity it will have its 
value appreciated, and the contrary when its quantity is 
augmented, — or that it is always, taken as a whole, of the 
the same precise value, — they would have perceived clearly 
that the average, ordinary, or as it may be called, agreeably 
to the analogy of prices, the natural interest of money, must 
necessarily be independent altogether of the quantity of money 
in circulation.* 

* Tliroughout tlic discussions in which I have been engaged concerning money 
and banking, I may remark that I have made no account of one system of man- 
aging the currency of a country having any advantage over another in the facili- 
ties which it may afford for regulating the domestic or foreign exchanges of a 
country. And I have not done so, because the best mode of regulating these is for 
the government, and tlie institutions created by it, to leave them to be adjusted by 
thenat»al and unrcstriated competition of the dealers in exchange. The rate of 
exchange will then be a true index of the state of trade, as well as a correct prog- 
nostic of an approaching expansion or contraction of the circulating medium. 



rOLITICAL ECONOMY. 225 



BOOK FOURTH. 



ON THE PRODUCTIVENESS IN THE SAME DEGREE OF THE 
DIFFERENT BRANCHES OF INDUSTRY; AND ON THE INTER- 
FERENCE WITH THE NATURAL DISTRIBUTION AMONG THEM 
OF LABOUR AND CAPITAL. 



CHAPTER I. 

THE QUESTION OF THE PECULIAR PRODUCTIVEIVESS OF AGRICUL- 
TURE EXAMINED. 

The different modes have been meiitioncd in which govern- 
ments have interfered, or might be supposed to interfere, with 
the circulating medium of a country. But this is very far 
from being the only interference of it with a more natural 
state of things, which falls under the animadversion of the 
political economist. Indeed, the great errour of the rulers of 
mankind has hitherto been, that human happiness is, in a much 
more considerable degree than it really is, the result of legis- 
lative regulation. They have almost entirely overlooked the 
tendency of society, acted upon continually by the wants and 
consequent desires of men, to adjust itself naturally in the 
most advantageous manner ; a truth which will be per- 
ceived more and more distinctly by the student of political 



" THE PRINCIPLES OF 

economy, as he advances farther into his subject, and meditates 
upon it more profoundly. 

One of the most remarkable instances, — I might have said 
the most remarkable instance, — of an excessive interference 
with the order of nature, on the part of governments, is pre- 
sented to us by their attempts to encourage one branch of 
industry at the expense of another, — attempts growing out of 
the notion that the various occupations of men are advanta- 
geous to a country in very different degrees, and even, 
occasionally, that certain occupations, however profitable to 
the individuals employed, are of no advantage whatever to the 
community of which they are members. And it will for the 
most part suffice, for the purpose of shewing the inexpediency 
of every such encouragement, to exhibit the fallacy of the 
aro-uments by which the notion just mentioned has been 
maintained; for, independently of any direct proof of the 
superior advantages to be derived to a country from the 
practical establishment of as great a degree of liberty as is 
possible, in the disposal of the labour and capital of individuals, 
there is surely no one who will not be ready to acquiesce in 
the propriety of the natural distribution of these not being 
disturbed by the interference of government, provided no 
sufficient reason can be shewn why it ought to be thus dis- 
turbed. 

The first argument whose fallacy I shall here undertake to 
exhibit is that which attributes to agncuUure a superiority 
over every other department of industry, because, as is 
asserted, agriculture is the only department of industry which 
is in reality productive. Those who have reasoned in this 
manner have been, chiefly, the followers of the celebrated 
Quesnay in France, during the middle and latter portion of the 
eighteenth century ; and they founded upon it the practical 
recommendation, that the only tax imposed, however great 
might be the pecuniary exigencies of the government, should 
be a tax upon the land. It was maintained by them, as also 



POLITICAL ECONOMY. 227 

hy some later advocates of their doctrine, that, while the 
manufacturer and the merchant were employed in merely 
aheri-ng the forms of matter, or in transporting it from one 
position in space to another, the cultivator of the land was 
enabled to do something more than this, through the co-opera- 
tion of the powers of nature, which was truly the only 
producer in the case. After what has been delivered in the 
foregoing pages of the present work, the absurdity of an 
exclusive co-operation of nature with man in agriculture will, 
very probably, be evident to most of my readers. Without 
any reference, however, to what goes before, the action alone 
of the expansive force oi steam, in its numerous applications to 
the manufacturing arts, as well as to navigation, may be cited as 
sufficient evidence that nature's bounties are not dispensed 
to us from so contracted a field. A very little consideration 
will, indeed, serve to satisfy us that there is no portion of 
material wealth produced by man without the aid of natural 
agents extraneous from himself. And this surely could not be 
imagined to be otherwise, when his very existence would not 
be for an instant continued, were those agents to become inert 
or passive around him. 

But some of the writers who have held the doctrine of the 
exclusive productiveness of agriculture have referred for 
proof of it to the fact that, in this department of industry, not 
only is the wear and tear of the capital applied continually 
restored, with the ordinary rate of profits, but a rent besides 
yielded to the landlord^ which, it is asserted, is the case 
neither in manufactures nor commerce. Now if this assertion 
were true, which it is not universally, it must be obvious to 
my readers that the doctrine under examination would, never- 
theless, not be therefore established. All that we might 
possihhj be entitled to conclude is, that the various occupations 
of men are not ef^MaZ/^ productive . of national wealth; and 
how far this may, or may not, be the case, I shall consider 
directly. 



228 THE PBINCirLES OF 

The only mode in wliidi tlic circumstance of profits being 
yielded to the capitaHst in manufactures and commerce, as 
well as in agriculture, has been attempted to be got over, by 
those who have attributed an exclusive productiveness to the 
latter, has been by gratuitously assuming those profits to be 
so much taken from what should properly be regarded as the 
compensation for the services of the labourers employed. That 
there is not the least warrant for this assumption, is sufficiently 
manifest from the very nature of capital. It being that portion 
of wealth which is saved from present for future gratification, 
the motive for such self-denial on the part of the possessors of 
wealth would be exceedingly enfeebled, and the accumulation 
of wealth would be effectually checked, were the wages of 
labour to be at so high a rate as to absorb the whole of what 
would otherwise be profits. Deprived of the powerful aid of 
the capitalist, the labourer would then, of course, be left to his 
own resources ; and production could only take place in the 
rudest manner. The amount of wealth produced would, 
besides, be comparatively very limited ; — which, again, 
implies that wages would be reduced far below what they are 
in the existing state of things, when a certain share of what is 
actually produced is set apart to compensate the possessor of 
wealth for foregoing the present enjoyment of it, and consent- 
ing to employ it productively. 

Even though we should grant the correctness of the position 
that the profits of capital ought to be regarded properly as so 
much subtracted from the compensation to which the labourer 
is entitled, it would not follow that manufactures or commerce 
are wholly unproductive of wealth. Surely the amount of 
wealth which has been produced is never diminished by being 
simply transferred from one set of individuals to another. 
With what consistency, then, can it be maintained that, if the 
profits of the capitalist were supposed by us, so to speak, to 
be truly his legitimate property, the fact of their existence 
would be adequate evidence of production having taken place, 



POLITICAL ECONOMY. 229 

— while we must, on the contrary, on the discovery of those 
profits being the legitimate property of the labourers employed, 
hold that the occupation in which these very labourers have 
been engaged is altogether unproductive ! 

This part of my subject may, however, be now disposed of 
by remarking that the argument in favour of the exclusive pro- 
ductiveness of agriculture is founded on the supposition of the 
acceptation of the term wealth being restricted to material 
objects ; and of course, it is, at once and entirely, set aside 
by the adoption of the more extended definition of wealth. 

There are those who, conceding the productiveness of every 
department of industry, have yet maintained agriculture to be 
more productive than any other. This notion, too, was 
founded on the fact, or assumed fact, that the capital applied 
to the land is the only capital which, besides yielding the 
ordinary profits to its owner, enables him to pay a rent to the 
landlord or proprietor of the soil. Now, disregarding the 
circumstance of rent being occasionally paid in manufactures 
and commerce, I remark that it would be singular indeed if 
the existence of rent, which was shewn to be an effect of the 
ever diminishing returns from the land, on the successive 
application to it of equal portions of capital and labour, could 
be adduced with propriety as evidence of agriculture being in 
any especial degree productive. If all the land of a country 
were suddenly to become equally fertile with that which is at 
present of the best quality, and be equally favourably situated 
with respect to a market, no rent would be any where paid 
for it ; while, at the same time, the labour appUed to the land 
would be acknowledged by every one to have become more 
productive than it was before. 

In consequence of rents being paid to a greater extent in 
agriculture than in either manufactures or commerce, — which 
rents can only be paid out of the surplus remaining, after the 
ordinary rate of profits has been retained by the capitalist, — 
it must follow that a greater value is, on the whole, actually 

30 



230 THE PRINCIPLES OF 

produced by means of the application of a given capital in the 
former department of industry than in the other two. This, 
however, is no reason why a preference should be given, 
either by individuals or by the legislature, to agriculture ; for 
every additional capital applied to the land will necessarily 
have to be applied under the most disadvantageous circum- 
stances ; and any increase of the rents paid to the landlords 
which may ensue, on account of more labour and capital 
beino- applied to the land than would naturally be the case, 
will manifestly be so much gained by them at the expense of 
the producers generally. 

It has been shewn that there is no ground for sup- 
posing nature to co-operate with man in agriculture alone, 
thus enabling him to pay a rent to the proprietor of the soil. 
I now advance a step farther, and assert that no reason can 
be given why nature should co-operate with man in a 
gi'eater degree in agriculture than in manufactures or com- 
merce. We can, in no case, determine how much of the 
labour of production is nature's, and how much is man's. 
Nor is it of any moment that we should ; since, if even the 
determination of the point in question were practicable, and 
it should be ascertained that the share of the work performed 
by nature in one case was proportionally more than what it 
performs in another, the only circumstance which ought to 
have any influence upon the distribution of the capital and 
labour of a country,— having a regard to the national welfare, 
— would be the comparative amount of advantage to be 
realised by the capitalists individually in different occupations. 
They will be distributed in the most desirable manner, when 
this advantage is uniformly the same, that is, when every 
capitalist is making neither more nor less than the ordinary 
profits. If a lower rate of profits than this be received in any 
one branch of industry, it is a manifest indication of a greater 
amount of production having taken place in it than is required 
by the comparative wants of the community ; and, on the 



POLITICAL ECONOMY. 231 

Other hand, if more than the ordinary rate of profits be 
received, it is equally manifest that the wants of the com- 
munity call for a greater supply of the commodity pro- 
duced, at the expense of a diminished supply of every thing 
else. 



CHAPTER II. 

PRODUCTIVEXESS OF COMMERCE THE COMMERCE OF SPECULATION 

DEALERS IN MONEY. 

Assuming the productiveness, not only of agriculture, but of 
every other department of industry, I have shewn that they 
are all of them equally productive. But some writers, — the 
Abbe Raynal for instance, — who have attributed the quality 
of being productive to manufactures as well as to agriculture, 
have at the same time denied it to commerce, which they 
defined to be merely the exchange of equivalent commodities. 
This definition is, evidently, too much restricted. The term 
commerce is properly applied to the whole series of acts, by 
means of which the products of the farmer or manufacturer 
are transported from the places of their production, and dis- 
tributed among the individuals by whom they are destined to 
be consumed ; and the exchanges which occur of those pro- 
ducts are only particular acts in that series. In the actual 
condition of society, when labour is so much subdivided, these 
exchanges are absolutely necessary for effecting the distribu- 
tion, among the consumers, of the wealth produced ; but 
they are certainly not more necessary than are any other acts 
in the series of which mention has been made. And it is not 



232 THE PRINCIPLES OP 

less absurd to define commerce to consist merely of these 
exchanges, than it would be to suppose the last, or any other 
link of a chain, to constitute the whole of the chain, or than 
it would be, in geometry, to confound any one point of a line 
with the hne itself. 

In direct proof of the productivenes of commerce, I shall 
remind my readers that exchangeable value is a criterion of 
the existence of wealth. Hence we may infer that every 
application of man's labour which contributes to render the 
exchangeable value, or price, — I mean, of course, natural 
price, — of any commodity what it actually is, must be neces- 
sarily productive of wealth. Now this happens in the case of 
commerce, just as it happens in that of agriculture, or in that 
of manufactures. The expense of transporting a commodity 
from the producers to the consumers of it, and of distributing 
it among the latter, is quite as much an element of its price, 
as is any equal expense of producing it while it remains yet in 
the hands of the former. Besides, on the supposition of com- 
merce being in reality unproductive, no diminished production 
ought to ensue if all transportation of commodities from place 
to place were to cease, and all exchanges of them were to be 
prohibited. But so far from this being the case, it is plain 
that every individual in the community would be reduced to 
the necessity of consuming only the identical portion of wealth 
which he himself produced ; and the quantity of it produced 
would be only a very small fraction of what it now is. The 
conclusion forces itself upon us, that commerce is a productive 
department of industry. 

But while commerce generally is acknowledged by most 
persons to be productive of wealth, and as productive of it 
as is either manufactures or agriculture, we occasionally hear 
the commerce of speculation indiscriminately condemned as 
a useless application of the labour and capital of the commu- 
nity. This is a mistake. Where no artificial variations are 
produced by the interference of government, or of the insti- 



POLITICAL ECONOMY. 233 

tutions created by it, in the natural rates of the supply and 
demand of commodities, including money, speculation cannot 
be carried to excess. In such a state of things, it will serve 
to distribute over a certain period the actual supply of any 
article in the most advantageous manner, without any coun- 
terbalancing public disadvantage. To illustrate my meaning 
by an example : let the crops of grain in any year have been 
less abundant than usual. Even though the demand for grain 
were to continue unaltered, this deficiency in the supply of it 
will cause its price to rise. But the demand for it will not 
continue unaltered. As soon as it is surmised that the quan- 
tity of grain in the market, or about to be brought into the 
market, is less than the average supply, an extraordinary 
demand will be made for it by the speculators. By purchasing 
at present prices, and selling out, after an interval, at 
advanced prices, they will expect to make a considerable profit. 
Some of them will not fail to realise their expectations, by 
disposing, at the proper season, of the stock of the article 
which they may have in their possession. Others, however, 
are frequently losers, instead of gainers, by holding on to it too 
long. And this is, more especially, apt to be the case Vv^here 
the article in question was purchased a short time after it 
became notoriously an object of speculation, — on account of 
the well known tendency of the price of a thing, when it has 
once from any cause begun to rise, to rise somewhat, and 
often a good deal, higher than the point at which it will ulti- 
mately remain stationary. Now, from this view of the 
business of speculation, in reference to grain, — and the same 
is true in reference to any other commodity, — it must be 
obvious that prices w^ill be rendered higher in the earlier 
portion of the time during which a diminished supply will 
necessarily exist, and, of course, lower during the latter 
portion of it. The scarcity will be thus nearly uniformly 
diffused over the whole time, and will therefore be productive 
of a less amount of inconvenience. 



234 THE PRINCIPLES OF 

My readers will easily understand that, if prices were not 
at once to rise on the occurrence, or expected occurrence, of 
a considerably diminished supply of any article, and to rise 
above what they would be but for the interference of the specula- 
tors, so much of the article mij^ht be consumed, especially if 
it be a necessary of life, as to cause a very high degree of 
inconvenience, or even distress, to pervade the community, 
before the supply could be again renewed. 

Just in proportion as the prices of commodities in general 
are steady, it is plain there will be less room for the occupa- 
tion of the speculator, and fewer persons will be disposed to 
embark in it. Where, however, through frequent expansions 
and contractions of the currency produced by a vicious 
system of banking, or from any other disturbing cause, the 
relations which the supply of and the demand for commodities 
in general bear to the supply of and the demand for money 
are such as to induce an unnecessary fluctuation of prices, 
speculation will take place more actively, as well as be 
carried to a vicious and injurious extent. Then only ought it 
to be condemned and pronounced to be unproductive ; exactly 
as any other branch of business is to be characterised as 
unproductive only when it is carried on more extensively than 
the real wants of the community require. 

The speculators are not the only class of persons whose 
occupation has been attempted to be rendered odious, even 
•when they arc actually engaged, while promoting their own 
interests, in conferring upon the community nothing but 
unmixed good. We occasionally hear the brokers also, — I 
mean the money brokers, — denounced as a set of men who 
are enriching themselves at other people's expense. And this 
is founded on the notion that they contribute, by the additional 
demand which they make for money, to render it less plentiful 
than it would otherwise be. That such a notion is at once 
both superficial and absurd, will appear on the slightest 
reflection upon the nature of the offices performed by a 



POLITICAL ECONOMY. 235 

broker. He is simply a middle-man between the buyers and 
the sellers. He becomes so, too, on account of the conve- 
nience of both these parties being subserved by his intervention. 
If such were not the case, we may rest assured they would 
very soon prefer to deal directly with one another. 

I may add that the prejudices afloat in society against the 
dealers in money generally are quite as absurd as those which 
some people retain against the dealers in flour, or in any other 
commodity of prime necessity; for money is, indeed, neither 
more nor less than a commodity of this description. 



CHAPTER III. 

OP COMMERCE WITH A FOREIGN COUNTRY DOCTRINE OP THE 

BALANCE OF TRADE. 

Many writers who have gone so far as to admit the general 
truth of the proposition, that the most advantageous distribu- 
tion of the capital of a country is when every capitalist is 
making neither more nor less than the ordinary rate of profits, 
have denied its application to /ore/g"^ commerce. They argue 
that one capital only is set in motion or employed in the 
foreign trade, while there are two employed in the home trade. 
In the trade, for instance, between New York and New 
Orleans, one capital is employed in the former, and another in 
the latter city ; but, in that between New York and Liver- 
pool, they maintain that there is only one, — only one American 
capital is of course meant, — that which is employed in Liver- 
pool being an English capital. The fallacy of this objection 
to foreign commerce will readily appear if we look at the 
consequences which would follow, were it to be entirely pro- 
hibited. Whatever amount of American capital might have . 



236 ' THE PRINCIPLES OF 

been invested in the Liverpool trade will now have to find an 
investment in the home trade, or in other occupations at home. 
There will, however, be no creation, but only a transfer, of 
capital ; and the two additional portions of capital which 
may come to be employed in the home trade will be equal to 
only one poi'tion of what before found employment in the 
foreign trade. More I need not say in refutation of the argu- 
ment I am examining. 

An argument of considerable plausibility has been urged 
against the employment of the capital of a country abroad, — 
and, consequently, urged to a certain extent against foreign 
, commerce, and every other occupation having a tendency 
to induce an exportation of capital, — to wit, that the labour 
to which the capital employed at home affords occupation is 
that of the inhabitants of the country, while the labour, on 
the contrary, to which the capital employed abroad affords 
occupation, is, generally speaking, of a foreign description, I 
may remark in reply that, if savings were[never made from the 
wages of labour, there would, obviously, be no sufficient 
reason, in what has just been said, for any interference with 
the natural distribution of capital. The smallest excess of 
profits received on that which is employed abroad will furnish 
the means of a more rapid augmentation of wealth and popu- 
lation, and will thus determine, at a period less or more remote, 
the actual existence of a greater amount of wealth, and a 
greater number of inhabitants, than would exist if all the 
capital of the country had been forcibly directed into domestic 
channels. Now although savings are in fact, to a certain extent, 
made from the wages of the labourers, this circumstance 
is, very probably, more than counterbalanced by the compara- 
tively high profits of the portion of capital which is employed 
in foreign countries. These high profits are not, as some 
might, at first view, be disposed to think, merely such as, 
besides an equal return with that to the capital employed at 
home, is adequate to the greater risk run of the ultimate loss 



POLITICAL ECONOMY. 237 

of the capital itself from which they are derived. They will 
always exceed this amount, because of the great unwillingness 
which men, in general, feel to separate themselves for any 
length of time from their property. 

But here it may be said that the very circumstance last 
mentioned affords a strong reason why the employment abroad 
of a portion of the capital of a country will be apt to have 
injurious consequences on its prosperity. When a man's pro- 
perty is in another country, and is yielding him a high rate 
of profit, nothing is more common than, after the lapse of a 
certain time, to see him take up his residence where it is 
invested ; and the whole amount of his property must then be 
necessarily regarded as a national loss. On this ground, the 
interference of the legislature with the disposal of the capital 
of individuals might perhaps be sometimes justified, were it 
only sufficiently practicable. To render it practicable, how- 
ever, nothing short of an entire prohibition bf the exportation 
of commodities from a country to all others would be requi- 
site ; for otherwise, in despite of every eflibrt of the govern- 
ment, a man who wishes to transfer his property to another 
country has only to purchase any one article of commerce, 
and to export it ; or to purchase foreign bills of exchange, the 
amount of which, when drawn for, can be invested abroad, 
and, when so invested, may be regarded in the light of a 
value received for commodities, other than money, previously 
exported. 

In the United States of America, the point which has just 
been considered is one of no practical moment, in as much 
as the profits of capital are higher in them than they are 
almost any where else. Capital is, in consequence, continu- 
ally flowing to them from other countries ; and no inducement 
is offered, unless under pecuUarly advantageous circumstances, 
to employ it away from home. 

I come now to an objection to an unrestrained trade with 
foreign nations, the discussion of which has occupied no 

31 



238 THE PKINCIPLK8 OK 

small portion of the attention of the political economists of the 
last century; and, even at the present day, we hear it occa- 
sionally put forth by some among the more zealous advocates 
of restrictive regulations in respect to commerce. It is this, that 
only that foreign trade is a beneficial one where the exports 
exceed the imports in value ; occasioning thereby a flow of 
specie into a country in payment of the excess, or balance. 
Hence the expression " the balance of trade ;" this being Jield 
to be favourable when the exports are in excess, and unfa- 
vourable when the imports are so. 

This whole doctrine was founded on the mistaken notion, 
that the wealth and prosperity of a country depended essen- 
tially on the quantity of the precious metals which it possessed ; 
and it, indeed, almost implied the absurdity that those metals 
alone constituted what should properly be denominated wealth. 
From this doctrine too, the important consequences were 
deduced, that government should, in the first place, do every 
thing in its power to increase the whole amount of exports, 
and to diminish the whole amount of imports, — and secondly, 
that it should positively discourage all persons subjected to 
its control from trading with any foreign country from 
which a greater value is imported than is exported to it. 

If he bear in mind the principles in relation to money which 
were estabUshed in the preceding book, the reader will easily 
perceive the absurdity of supposing that a country is wealthy 
because it has a large amount of the precious metals. Those 
metals constitute only a portion, iand by no means the most 
important portion, of the national wealth ; since if the supply 
of them were to be increased, and the circulating medium 
proportionally expanded, this could only be efTcctcd by the 
increased exportation, or diminished production, of an equal 
value of commodities^other than gold and silver ; while at the 
same time, as has been fully explained, the value of the circu- 
lating medium will continue unaltered, a given portion of it 



POLITICAL KCONOMV. 239 

being depreciated in value according as the whole of it has 
become larger than it was. 

But some persons, as I have stated, have not contented 
themselves with comparing the whole amount of exports with 
the whole amount of imports, and with inferring the pros- 
perity of a country from an excess, real or supposed, of the 
former over the latter. Examining the commerce of a 
country with every other separately, they have pronounced 
the commerce with that country the exports to which exceed 
in value the imports from it to be an advantageous commerce, 
and, on the contrary, the commerce with that the imports 
from which exceed the value of the commodities exported to 
it to be a disadvantageous commerce ; — and they have, con- 
sequently, besides recommending measures calculated to 
augment the whole amount of exports and at the same time 
diminish the whole amount of imports (exclusive of money, 
as the terms exports and imports are commonly used), been 
disposed, as has also been stated, to discourage all commer- 
cial intercourse of the country in question with particular 
parts of the world. Here there is an additional errour implied, 
viz. that whenever, in the intercourse of one country with 
another, the exports exceed in value the imports of commodi- 
ties other than money, specie must necessarily flow from the 
latter into the former country, for the purpose of paying the 
balance. This position would, indeed, be a correct one on 
the supposition of the foreign commerce of the two countries 
being confined entirely to one another, and on this supposition 
only. In order to make this distinctly appear, let us call 
those countries A and B respectively ; and let there be a 
third C, with which a commerce is carried on by each of 
the other two. Now it may be conceived that A imports 
from B more than it exports to it, that B imports from C 
more than it exports to it, and also that C imports from A 
more than it exports to it. In this state of the commercial rela- 
tions of these three countries, A will become indebted to B, B 



240 TUE I'RINCIPLES OF 

to C, and C to A. To discharge its debt to B, A will, how- 
ever, not be under a necessity of transmitting specie to that 
country. The merchants of the country A need only to 
draw bills of exchange upon their debtors in the country C in 
favour of their creditors in B ; and the equilibrium of their 
debts and credits may be thus completely restored. It is 
plain, too, that we may now generalise, and maintain that the 
circumstance of more commodities, other than money, being 
imported by one country from another, than are exported 
by the former to the latter, is no evidence whatever of a 
movement of specie between the two countries. And hence, 
every objection to the natural course of trade, as that which 
is the most advantageous to a country, founded on the assumed 
fact of such a movement of specie, will be perceived to be of 
no account. 

I may observe that, should the trade between A and B be 
diminished, or be entirely cut off, that of each of them with C, 
as well as with other countries generally, would, it will be 
evident, not remain on its former footing ; for then, in the 
case of A, there would be an excess of the whole amount of 
exports over that of imports, while the contrary of this would 
take place in that of B. These excesses would only have a 
temporary existence, and the ordinary relation of exports to 
imports would soon be re-established by the movement or 
flow of specie from country to country, as has before been 
explained. 



POLITICAL ECONOMY. 241 



CHAPTER IV. 

THE SUBJECT OF THE BALANCE OF TRADE CONTINUED. 

The language in reference to foreign commerce, whicli 
has been hitherto employed, has been such as may have 
appeared to imply an equality, on the average, in the value of 
the exports from and imports into a country, of commodities 
other than money. An equality of this nature is certainly 
possible, but only under a peculiar combination of circum- 
stances. The general lave in the case is, that the value of the 
imports must exceed that of the exports, when both these 
values are estimated in the country into w^hich the imports, 
and from which the exports, are made, — and likevv^ise when 
the value of the former is estimated in the countries whence 
they are procured, while that of the latter is estimated in the 
country where they are received. 

To shew, in the first place, that such is the general law on 
the first of the two suppositions which have just been men- 
tioned, I shall set out with assuming all the capital employed 
in the country to which my remarks shall have relation, — 
say the United States of America, — to be owned in the 
country itself; and so, also, in respect to the capital of every 
description employed in its foreign commerce. Then it will 
be obvious that the value of the imports must be such as, after 
replacing that of the exports, will suffice to yield the ordinary 
profits to all the caphal employed in the commerce with foreign 
countries, including of course, in those profits, the freights, 
as well as every other expense of transportation. If we, 
indeed, suppose no more specie to flow from abroad into the 
country, than from the country in the opposite direction, — a 
condition of things which is, on the average, very supposable, 



242 THE PRINCIPLES OF 

where the precious metals arc, to an adequate extent, the 
product of the country itself, — the excess of the imports above 
the exports will evidently be the measure of those profits. On 
the other hand, where the supply of the precious metals is 
derived in part, or wholly, from abroad, not only bullion, but 
specie also, will be imported ; and the latter in preference to 
the former, on account of the certificate to its weight and 
fineness that is impressed upon it. This circumstance may 
prevent the imports from exceeding the exports as much as 
they would otherwise do, — exports and imports being here 
understood in their usual acceptation, as referring to commo- 
dities other than money. It may be added that, if a country 
which derives its supply of gold and silver, in whole or in part, 
from other countries, should happen to be augmenting more 
rapidly in population and wealth than the other portions 
generally of the commercial world, specie would, in con- 
sequence, be imported more extensively, and the excess of the 
ordinary imports above the exports would, on this account 
too, be lessened. 

In the next place, however, let all the capital employed in 
the country, or in its foreign commerce and navigation, not 
be the property of individuals residing in it. The profits of 
the capitalists abroad will in this case, of course, have to be 
exported, or, what amounts to the same thing, an equal value 
in commodities that would otherwise contribute to swell our 
imports will be retained abroad, and will again reduce the 
excess of imports above exports. 

Should the capital of a country, tempted by the superior 
advantages offered for its investment elsewhere, be to a 
certain extent annually transferred from it to other countries, 
we would have another reason why the exports will be 
augmented in value, and why the excess of the imports above 
them will be still farther diminished, if not made to disappear 
entirely. 

But this, it may be mentioned, is very far from being the 



POLITICAL ECONOMY. 243 

case in the United States. American capital is, no doubt, 
occasionally, though in a comparatively small amount, em- 
ployed out of the country : still, speaking in general terms, 
no one will deny that our capital is continually receiving 
accessions, and by no means inconsiderable accessions, from 
the various parts of Europe, and especially from Great 
Britain. On this account, the excess of our imports above 
our exports ought to be unusually large. 

If the value of the imports be estimated by what they cost 
in the countries whence they were procured, they will mani- 
festly not so much exceed the value of the exports as when 
the values of both exports and imports are estimated at home 
in the same country, — the case already considered. Never- 
theless, I think my readers, after the statements above made, 
can scarcely fail, even here, to assent to the proposition, that 
the imports will, very generally, exceed the exports in value, 
in the common acceptation of the terms ; and they will, 
moreover, not be at all surprised to find that such has been 
the fact in the United States, from the first adoption of the 
constitution, in 1789, to the present time, when they are told 
that the value of our imports is estimated by adding 10 or 20 
per cent, to their cost in the countries where they are pur- 
chased, and when they keep in mind, both the high rate of 
profits which must be paid from the imports, and the influx 
of capital which is continually taking place from abroad. 

The absurdity of regarding an excess, and sometimes an 
impossible excess, of exports above imports, as the measure 
of the advantage to be derived by a nation from its foreign 
commerce, must be too apparent for me to dwell upon it 
longer. This doctrine indeed, of the balance of trade being 
favourable to a country when an excess of exports is supposed 
to exist, however largely it has figured in the writings of the 
economists, real or pretended, of the last century, may be 
regarded as at present almost entirely exploded. 



244 THE PRINCIPLES OF 



CHAPTER V. 

ON THE AMOUNT OF THE DUTY UPON A COMiMODITY, WHEN IT IS 
IMPORTED FROM ABROAD, WHICH WILL ADMINISTER ADEQUATE 
ENCOURAGEMENT TO THE DOMESTIC PRODUCERS. 

We now approach the discussion of a subject which has 
attracted in no small degree the attention of the political 
philosophers and statesmen of modern times, and which, in 
our own country, has been the occasion of much excitement 
and agitation in the community at large. I allude to what is 
familiarly styled with us " the tariff question," — or, in other 
words, to the expediency, or inexpediency, of prohibiting the 
importation into a country from abroad of certain commodi- 
ties, with the object in view of establishing the production of 
the like commodities at home. Prohibiting is here the proper 
word ; for although the advocates of this system of inter- 
ference with the natural order of things have, in most cases, 
preferred the imposing of a tax or duty on the importation of 
such commodities as are of the same description with those 
■which they are desirous of being produced at home, to the 
absolute prohibition of importing them from other countries, 
they have yet insisted upon the duties imposed being suffi- 
ciently high to operate prohibitorily. And, according to their 
notions of expediency, they have done right to insist upon 
this ; as I shall proceed to shew before actually entering on 
the proposed discussion. 

Let us suppose a duty of ten per cent, to be imposed upon 
the value of any article of foreign growth or manufacture, 
when imported into the United States ; and let us also suppose 
the duty to be paid, in the first instance, by the importing 
merchant, at the time he receives the article. The quantity 
of it imported will not be as great as before ; since, in that 



POLITICAL ECONOMY. 245 

case, in as much as both the supply of, and the demand for it, 
would remain unaltered, its price would still be what it was 
previous to the imposition of the duty; and, the merchant 
would then be obliged to take from his profits, — and, where 
these were not at a rate high enough to be equal in amount to 
the duty to be paid, he would be obliged to take from his 
capital, after having exhausted his profits, — in order to make 
the payment required. It is evident that a portion of the capital 
employed in the importation of the article in question will be 
transferred to other employments ; thus diminishing the supply 
of it in a degree sufficient to cause its price to be ten per cent, 
higher than it was before, when it will be just sufficient to 
enable the capital of the merchant to yield him the ordinary 
profits. If his payment of the duty, and the sale by him of 
the article imported, be not contemporaneous, but the latter 
occur at a certain interval after the former, it will be 
requisite for its price to exceed that just mentioned, by an 
amount equivalent to the profits, for the intervening time, 
upon the duty which he advances. Assuming however, for 
the sake of simplicity, that the payment of the duty on 
the imported article, and the sale of it, take place at the 
same time, it will follow that the burthen of the duty is 
transferred by the merchant who imports it from his shoul- 
ders to those of his customers, the retail dealers. And in 
the very same manner as this transfer of the duty has been 
shewn to be efiected, may it be shewn to be transferred 
from the retailers to the consumers. 

The whole supply of the commodity upon which the duty 
is levied has been supposed to be still procured from abroad, 
in despite of the augmentation of its price to the consumers ; 
a supposition, again, implying that it is impossible for it to 
be produced in the country itself except at a cost greater than 
that at which it can be procured from abroad, including in the 
latter cost the amount of the duty. 

Suppose now the commodity taxed to be broadcloth of a 

32 



246 THE rniNCirLEs of 

particular quality ; say cloth which, if allowed to be imported 
freely, that is without any obstruction on the part of the govern- 
ment, would sell for five dollars the yard. A duty of ten per 
cent, upon this value will cause it to rise to five and a half 
dollars ; and if the cost of producing the cloth in the country 
would be six dollars, the supply of it will, it must be manifest, 
come wholly from other parts of the world. This, too, would 
be a continued state of things, while the duty is increased from 
ten up to any amount short of twenty per cent. 

If we suppose the duty to exceed the last mentioned per 
centagc, and to amount say to thirty per cent, on the valuo of 
the cloth which may be imported, the price of it would rise to 
six dollars and a half; and as cloth of the same quality is, by 
hypothesis, produceable at home for six dollars only, the foreign 
article will be no longer able to compete with the domestic 
manufacture. While the former will, in consequence, cease 
to be imported, the latter, by means of the encouragement or 
protection aflbrded to it by the government in the imposition 
of the duly, will be estabHshed as a regular branch of indus- 
try. So, of course, if the duty be other than thirty per cent., 
provided it be more than the rate, viz. twenty per cent., which 
would cause the domestic and the foreign article to sell at 
exactly the same price. 

But, in the next place, let us inquire what the effect of the 
duty would be, in the case under consideration, were it to be 
neither more nor less than just twenty per cent. Here it might 
perhaps seem, at first view, that one-half of the supply of the 
article in question would be furnished by the American manu- 
facturer, and tlie other half by the foreign. On farther reflec- 
tion however, the reader will perceive that such an equal 
division is scarcely practicable, and that, if it were so, it could 
subsist only for a very short period. It is evident that when 
the duty of twenty per cent, is first imposed, the investments 
of capital at home and abroad being of a nature to give the 
foreign producer the possession of the American market, no 



POLITICAL ECONOMY. 247 

sufficient, motive exists for the transfer of American capital 
with a view to the production of the article faxed. Any 
attempt on the part of our capitalists to engage in its produc- 
tion, under these circumstances, must necessarily be followed 
by an overstocking of the market and consequent lowering 
of prices, — which lowering of prices must render such an 
attempt an unprofitable one. On the other hand, should a 
higher duty than twenty per cent., — a duty which had been 
the means of excluding the foreign article, and establishing 
the manufacture of American broadcloth, — be reduced to that 
amount; the American producer being in possession of the 
market, no sufficient motive would be presented to capitalists 
abroad for augmenting their production of broadcloth, and for 
thus interfering with him. 

Speaking generally therefore, we may infer that to insure 
the production in the country of the article mentioned, and the 
same is manifestly true of any other article whatever, it will 
be necessary to impose a duty on the importation of \i greater 
than the excess of the cost of producing it at home over the 
price at which it can be sold on being imported from abroad, 
that is, as I have said, to impose a duty the proper effect of 
which is prohibitory. 

Notwithstanding, however, the statement which has just 
been made, if the duty on the imported article does not much 
exceed the excess of the cost of producing it at home over 
the cost of producing it abroad, it will occasionally happen 
that it will be profitable to import it ; and the domestic pro- 
ducers will not be so protected as absolutely to exclude all 
foreign competition. This will be owing to the occasional 
fluctuations in the local value of money ; leading, as those 
fluctuations in value have been shewn to lead, to a variable 
amount of importations. 

I may here remark, it is only in the way just mentioned that 
a duty, imposed on the importation into a country of any 
commodity, can operate alternately as a means of revenue to 



248 THE PRINCIPLES OF 

the government, and as a means of encouraging its production 
at home. No duty can, at one and the same time, produce 
both these eflects. When it encourages the domestic produc- 
tion of a commodity, it will bring no revenue into the pubUc 
treasury ; and when it brings a revenue into the pubhc 
treasury, it will not serve to encourage the domestic produc- 
tion of the commodity.* 



CHAPTER VI. 

DISCUSSION OF THE " TARIFF QUESTION." 

There are many individuals in our own country who are 
ready to assent to the general inexpediency of the interference 
of governments wath the natural distribution of capital and 
labour, and who would strenuously resist any attempt to dis- 
turb the perfect freedom of trade as at present subsisting 
between the different portions of the Union, who, nevertheless, 
entertain the notion, that the commerce between different 
nations cannot be always considered as on the most advanta- 
geous footing when it is left wholly unrestricted ; and who 
attempt to justify the imposition of very high duties on the 
importation of foreign goods by the fact of the rate of wages 
being lower in Great Britain than among ourselves. They 
insist upon the propriety of thus protecting the American pro- 

• Tliroughout this chapter, I have supposed the commodities concerned to be 
produced under circumstances of equal advantage or disadvantage. Should this 
not be the case, it is very possible tliat, with a given amount of duty, those which 
are produced under the more advantageous circumstances in the country itself 
niight exclude from the home market such as are produced abroad under tlie less 
disadvantageous circumstances. 



POLITICAL ECONOMY. 249 

ducer from the competition of the paupers of Europe. Let 
us now inquire into tlic correctness, or incorrectness, of this 
doctrine. 

My readers will perceive that it erroneously implies that 
mere lowness of wages is the cause of low prices. It will be 
recollected by them that, in any existing state of the arts, prices 
will depend as well upon the rate of profits as upon that of 
wages. If British goods can be imported into the country 
cheaper than goods of a similar description can be produced 
in it, this will not be owing simply to the circumstance of 
wases in Great Britain beincf lower than in the United States, 
but to that of wages and profits, taken together, being as low as 
they in reaUty are in the first mentioned country, and as high as 
they in reality are in the one last mentioned. Again, I shewed 
in my first book that, in any existing state of the arts, or, what 
amounts to the same thing, of the productive power in a nation, 
if wages were to fall, profits must necessarily rise, — and that, 
in consequence, such commodities as were the products chiefly 
of fixed capital, instead of falling in price as wages fall, would 
have their prices greater than before. Hence too, it follows, 
—what has been before mentioned, — that, if it were possible 
at once to raise the wages of the English labourer to a level 
with those of the labourers in America, it might very well 
happen that the manufacturers of our own country would be 
at a comparatively greater disadvantage in respect to foreign 
competition than they are at present. 

But waiving all considerations of the kind which has just 
been stated, I think it will not be difficult to convince the 
reader that the low rate of wages abroad, other circumstances 
remaining every where the same, is an advantage to us instead 
of a disadvantage. A low rate of wages will then render the 
cost of producing commodities of all descriptions, and there- 
fore their prices, correspondcntly low ; and a given quantity 
of them may be procured from abroad in exchange for a 
less amount of our own products, than when prices were 



250 THE I'RINCIPLES OF 

higher. This saving in the expenditure necessary for obtain- 
ing tlie imports into the country is, it is plain, a clear national 
gain. The imports may very possibly, on account of the 
increased demand for them at a lower price, be greater than 
they would otherwise be ; but such an effect cannot take 
place without a similar augmentation of the amount of exports. 
And a transfer, to a certain extent, of American capital may 
be required an a fall of wages abroad, in order that it may 
come to be invested most profitably. Whether, however, 
such a transfer be large or small, or do not occur at all, 
the command, on the average, of each individual of the 
community over the necessaries and luxuries of life will have 
been evidently enlarged. 

Here the advocates for rectrictions upon the foreign com- 
merce of the country offer to us an argument which they 
sometimes seem to regard as conclusive in their favour. They 
put the extreme case, that all things can be produced cheaper 
abroad than at home ; and they ask if, in such circumstances 
as these, the friends of a free trade among nations would still 
insist upon no protection being afforded by the government to 
the home-producers. I answer for the latter in the affirmative, 
— on the ground that, although the importation of every species 
of commodity from abroad cheaper than it can be produced at 
home is a supposable state of things, it is altogether out of the 
question to suppose it to have more than a momentary dura- 
tion. The extraordinary importations, which would flow from 
every quarter into the country, would have to be paid for 
exclusively in money ; and as the circulating medium is thus 
diminished in quantity, a given portion of it would be enhanced 
in value, or prices generally w^ould fall. It is evident, too, that 
they would continue to fall until no sufficient motive would 
exist for sending the money of the country abroad. During 
the fall of prices, first one commodity, and then another, and 
another, would cease to be imported ; while, on the other 
hand, one commodity after another would begin to be exported. 



POLITICAL ECONOMY. 251 

Moreover, when the vakie of money was again every where 
equalised, and it was no longer the subject of exportation, 
the exports and imports will have the ordinary relation to 
each other, — a relation explained in a preceding chapter. 

The diminution of the circulating medium will have been fully 
compensated for, by the commodities imported in exchange 
for the money which has been transmitted to other parts of 
the world. Indeed, those commodities, as in every other 
instance of the importation of commodities in exchange for a 
portion of the medium of circulation, are a clear gain to the 
country, because of the augmentmg in value of a given portion 
of that medium exactly in proportion as the whole of it is 
reduced in quantity. 



CHAPTER VII. 



THE SUBJECT CONTINUED. 



My argument against a " protecting tariff" has thus far 
proceeded on the supposition of the previous existenjce of an 
entire freedom of trade among the different nations of the 
earth ; which freedom it is proposed, for the first time, to 
disturb. I will now take another step in advance, by sup- 
posing the condition of free trade to have been already 
disturbed by some one nation, — Great Britain for example. 
The question then presenting itself for solution is, whether all 
other nations would not best consult their interests by counter- 
vailing the restrictions which have been imposed upon their 
commerce, by means of the imposition of similar restrictions 
on British commerce. Or to bring the manner home to our- 
selves, the question may be put in the following form: — 



252 THE riJiNcirLEs op 

should Great Britain refuse to receive into her ports 
American cotton and tobacco, would it be our true policy to 
retaliate upon her, by refusing to receive her hardware and 
woollens ? 

A rcj>ly to this question needs not to be long sought after. 
For the government of the United Stales to act on the principle 
suggested, would be to say to that of Great Britain, — by your 
legislation you have injured your own country, and you have 
at the same time injured the people of America; therefore, by 
way of helping the matter, we resolve upon inflicting a similar 
injury, absurd and ridiculous as this procedure may seem, upon 
both you and ourselves. 

That the foreign government is guilty of an injury to its 
own subjects, is sufficiently evident from what has been already 
delivered in the present book. By refusing to receive our cotton 
and tobacco, the consumers of these articles will be obHged to 
pay a higher price for them, than tiiey would otherwise have 
to do. They will also consume less of them than they formerly 
did ; and at least in reference to the article last-mentioned, which 
is not a necessary, but a mere luxury of Ufe, many who would 
have been consumers of it, will not consume it at all. English- 
men, for these reasons, will possess a diminished command 
over the necessaries and luxuries of Ufe ; or, in other words, 
the wealth of Great Britain will have been diminished. And 
that a like effect will be produced on the wealth of the United 
States, will follow from the principle previously established, 
that the imports into a country, and the exports from it, will 
always bear to each other a certain proportion, so that the 
exports cannot undergo a diminution without the imports like- 
wise becoming less than they have hitherto been. Until the 
imports of British goods are reduced to the proper amount, the 
excess of them will be paid for in money. Their prices 
abroad will consequently rise ; and they will, moreover, 
conlinuc at a higher rate. Not only then, will those of 
the inhabitants of America, who are not altogether prevented 



POLITICAL ECONOMY. 253 

from consuming foreign goods, consume them to a less extent 
than before, but to consume them will require a greater ex- 
penditure on their part. All this, too, is identical with saying 
that a diminution of American wealth will have taken place. 

It is scarcely necessary for me to add that the very same 
series of effects which I have just traced, as consequent upon 
a duty imposed in Great Britain on certain of the products 
of the United States, — effects injurious to both counti-ies, — will 
occur when a duty is imposed in America on the importation 
of British goods, only beginning in a different quarter. 

But let us, in the next place, suppose the extreme case of all 
foreign countries refusing to receive any thing from the United 
States, excepting gold and silver, in exchange for the commo- 
dities imported from them. It may be asked, whether it would, 
notwithstanding, be then proper to import as before from 
abroad, and to subject our country, in consequence, to being 
drained of its specie. I observe, in reply, that the foregoing 
argument will, on reflexion, be perceived by the reader to be 
applicable to every possible case, without exception. He can- 
not, too, but be now aware that to suppose a country to part 
with all its specie is an absurdity. According as specie flows 
from it, in exchange for the commodities imported, the prices 
of things will be falling ; and the imports will diminish in 
quantity, until, at length, it will become unprofitable to im- 
port any thing whatever. 

Universally, therefore, the amount of the imports will deter- 
mine that of the exports ; so that no interference of the govern- 
ment will be requisite to protect the country from an entire 
loss of its specie. And it has been shewn that a diminution of its 
specie is a matter of no permanent moment. 

In despite, however, of the above argument,— irrefutable 
argument I may surely venture to call it,— in favour of the sys- 
tem of free trade as opposed to that of restriction, we hear it 
continually asserted that, while the former system is an untried 
one, excepting perhaps in one or two instances on a very limit- 

33 



254 THE PRINCIPLES OF 

ed scale, the latter has every where been accompanied by an 
amount of prosperity altogether too great to be made the sub- 
ject of legislative experiment. Here I might reply by a denial 
of the alleged prosperity ; or, what is equivalent to such a 
denial, I might point the attention of my readers to the great 
amount of misery hitherto exhibited by every community of 
individuals, whatever may have been the constitution of gov- 
ernment under which they have lived. Even in the most 
prosperous communities, the wealthy have been few and the 
poor many. But granting, for the sake of argument, that 
prosperity to a certain extent has actually accompanied the 
restrictions which governments have imposed upon commerce, 
it would be strikingly illogical on the part of any one who is 
aware of the multitude of causes by whose combined action 
the condition of mankind is determined to be what it in reality 
is, to magnify one cause alone in such a degree as to throw 
every other into the shade. The utmost we would be justified 
in inferring from the premises, is a presumption in favour of 
things as they are, — a presumption putting the burthen of proof 
on the party who may at any time propose the introduction of 
any changes in the policy of a country. This burthen the 
advocates of free trade have evinced no unwillingness to 
bear. They have presented, for the consideration and con- 
viction of their opponents, the argument which I have charac- 
terised as irrefutable, and to refute which no direct attempt 
has in fact, to my knowledge, ever been made. 

The restrictive policy of Great Britain, when viewed in 
connexion with the degree of prosperity to which she has 
attained, is what especially has prevented very many indivi- 
duals from being adequately impressed by the argument in 
question. But a suspicion, at least, might have crossed their 
minds that the prosperity just mentioned existed notwithstanding 
the policy pursued in respect to foreign commerce, and not in 
consequence of it, had they attended to the cases of some other 
countries distinguished for their comparative prosperity, such 



POLITICAL EC0N03IY. 255 

as Holland or Switzerland, which afford to us instances of a 
near approach to the system of free trade. 

It may be remarked besides, that, when improvements in 
any of the arts of life are first promulgated to the world by 
their inventors, no one whose opinion is entitled to the shghtest 
consideration is found to condemn them a priori, on the ground 
of the danger and inexpediency of interfering with the existing 
condition of things. Any opposition to their being adopted 
proceeds invariably on the assumption of their not having 
as yet been proved to be real improvements. Surely then, 
no person endowed with the faculty of reason should system- 
atically shut his eyes in the case under examination, to the 
demonstrations of the political economist, and undertake to 
encounter these simply by the cry of theory ! theory ! thereby 
implying that all experience is opposed to them ; when the case 
under examination is one perfectly analogous to that of an 
improvement in the arts, — in reference, that is, to the effects 
upon the progress of national wealth, — as the reader will recol- 
lect it was stated to be in a previous part of the present 
work. In both cases alike the labour of the community is 
rendered more productive than it was before. 



CHAPTER VIII. 



THE SAME SUBJECT CONTINUED. 



Were the restrictionists to content themselves with con- 
founding, in the manner that has been explained, mere casual 
coincidence in time and place with the relation of cause and 
effect, it would be tantamount with an acknowledgment on 
their part of the weakness of the position assumed by them. 



256 THE PKINCIPLE9 OF 

But besides being guilty of this not very unusual fallacy in 
logic, they point triumphantly to the branches of industry 
which have been actually created, in more than one country, 
by the fostering hand of government, and to the numbers of 
the people for whom employment has been thus provided. 
They forget that it is not in the power of the government of 
a country, by any legislative act, to command capital into 
existence. AH that can be accomplished by such means, in 
respect to capital, is to cause its transfer from one employ- 
ment to another ; and if new branches of industry be perceived 
to spring up, on account of the protection or encourage- 
ment afforded them by the imposition of duties on the ifnpor- 
tation from abroad of goods of a particular description, we 
may rest assured that the quantity of capital which is em- 
ployed in all the various branches of industry, taken together, 
will have remained unaltered. The only point, indeed, really 
at issue between the advocates of a free trade among nations 
and their opponents, is whether a certain portion of the capital, 
and therefore labour, of the country, shall be engaged in pro- 
ducing those commodities which are ordinarily exported in 
exchange for the commodities imported from other countries, 
or whether it shall be engaged in directly producing these last ; 
and this necessarily at a greater cost than they could be pro- 
cured from abroad. 

The case of Great Britain, as has already been mentioned, 
is very frequently referred to, for the purpose of illustrating 
the beneficial effects of the legislative encouragement of parti- 
cular branches of industry. For example, in the reign of 
Edward the Third, the woollen manufacture, which subse- 
quently became So extensive a source of British wealth, was 
established through the instrumentality of such encouragement. 
And there is scarcely any other of the staple manufactures of 
Great Britain which does not owe its origin to the interference 
of the government in its behalf. Although capital, in all these 
instances, was merely transferred from one employment to 



POLITICAL ECONOMY. 257 

another and less profitable one, yet I am disposed to concede 
that the encouragement bestowed upon manufactures in a 
European country some centuries ago, when the community 
consisted only of the two classes of the nobility and of their 
retainers or vassals, had, in a certain degree, a beneficial ten- 
dency. It contributed, with otlier causes, to the formation, at 
that period, of an intelligent middling class, so essential for the 
attainment by a people of even the smallest degree of political 
liberty, as well as for maintaining and extending this after it has 
been once attained. There is more than one country, in our 
own day too, in which it might perhaps, for similar reasons, be 
expedient to depart from the course prescribed by the general 
principles of political economy. In the United States of 
America, however, the liberal constitution of the government, 
together with the character of the people generally, furnish 
certainly not the shadow of a pretence for the adoption of any 
such measure. 

But there are some persons who, while they seem to be 
aware that the interference of the government, in behalf of a 
particular branch of industry, merely occasions a different 
distribution of the capital of a country, nevertheless maintain 
that what is called the natural distribution of it is the most 
advantageous one, only on the supposition of the degree of 
acquired skill in the various arts of life being the same among 
every people, — a supposition which, I need not say, cannot be 
admitted, when, in one country, a certain branch of industry 
has been long established, and at the same time, in another, it 
has not as yet been introduced. The labourers of the latter 
country must, in respect to the branch of industry in question, 
be evidently less productive than the labourers of the former ; 
and capital will, for this reason, not be invested in it. Under 
these circumstances, the propriety is urged of temporarily pro- 
tecting every commodity from foreign competition which 
there is good reason to suppose can be produced as cheaply 
at home as abroad, if only the ordinary degree of skill be once 



258 THK I'KINCU'LKS OP 

acquired by llie woikincu of the country. Any sacrifice of 
national wealth which such a protection as this would imply, 
during the period of its existence, it is asserted would be more 
than compensated by the ultimately greater productiveness of 
labour, in consequence, to ensue. 

In opposition to the protection or encouragement here 
recommended, it may be observed that a practical difficulty 
will, in most cases, subsist in determining whether or not a 
commodity can be produced as cheaply at home as abroad ; 
that is, before the experiment is actually made of its production 
at home under the most favourable circumstances of acquired 
sl^ill^ — and that if the matter be left to the discretion of the 
legislature, they will be apt, not unfrequently, to discover good 
reasons, for imposing one duty after another on commodities 
imported, in the mere urgency of interested and influential 
individuals, or in other considerations of an equally objection- 
able character. 

That the legislative encouragement of certain branches of 
industry is very often of advantage to some particular section 
of country will not be denied by the most zealous advocate of 
the doctrine of free trade. But every local advantage, which 
may result from the interference of the government with the 
natural distribution of capital and labour, must necessarily be 
at the expense of the country at large. Capital will not only 
be transferred from one employment to another, but likewise 
from one part of the country to another ; or, which is the 
same thing, it will be invested, in consequence of the action of 
the government, where it would not have bceji naturally in- 
vested. If, for example, the tariff regulations of the United 
States have benefited Rhode Island and some other portions of 
New England, the Union, taken as a whole, has administered 
the benefit. It would, moreover, have been well had the loss 
and gain here balanced each other. But since the natural 
distribution of the capital and labour of the community is the 



POLITICAL ECONOMY. 259 

most advantageous distribution of them, it follows that the loss 
must have been more than equivalent to the gain. 

Besides the augmented investments of capital in a particular 
section of a country, we often hear the increased value of land 
in it cited as evidence of a creation of wealth, resulting from 
the restrictions imposed upon foreign commerce ; and I mean 
here, either the increased value of the land on which no addi- 
tional capital has been applied, or its increase in value beyond 
what would be determined by the ordinary profits of the addi- 
tional capital which may have been applied to its cultivation. 
A rise like this in the value of the land is a consequence of its 
having become more favourably situated in respect to a market 
for its produce, by means of the denser population now congre- 
gated in its vicinity. In as much, however, as the wealth, and 
therefore the population of the country, as a whole, will not be 
as great as it would be on the system of free trade, the rise of 
value of which I am speaking, will have been accompanied by 
more than a corresponding fall of value elsewhere. 

It has been stated that there is no advocate of a free trade 
among nations who will not be ready to admit the possibility 
of a particular section of a country profiting by those very 
restrictions on the freedom of trade which are injurious to the 
country, regarded as a whole. Some may, however, be dis- 
posed to argue that, because the whole capital of a country is, 
in such a condition of things, less profitably invested, or, in 
other words, because the rate of profits is not as great as it 
would otherwise have been, capital and wealth, and therefore 
population also, will not increase as rapidly ; and a period 
must sooner or later arrive, when every portion of an extensive 
country, whatever peculiar adaptations it may possess for the 
occupations artificially called into existence, will be less 
wealthy and less populous than it would then be if things had 
been left to take their natural course, undisturbed by the action 
of the government. All this is unquestionably true. Never- 
theless, those adaptations may, in certain cases, be so extraor- 



200 THE PRINCIPLES OP 

dinary as to cause the anticipated period to be considerably 
postponed, and even occasionally postponed to such an extent 
as to justify us, Tor all practical purposes, in overlooking its 
advent altogether. A few localities in the portion of the 
United States situated north of the Potonnac river were 
placed by our tariff" laws, there can be no doubt, in the predi- 
cament just described. 

But it would be going a great deal too far to maintain, as 
others have done, that, notwithstanding the disadvantages to 
which the country, considered as a whole, has been subjected 
by the action of those laws, the southern states were the only 
sufTcrers in the case, and that the North was a gainer^ although 
at the expense of the South. And I do not hesitate to say that 
the reader will, in proportion as he reflects on the subject, and 
especially on the difficulty of transferring capital from 
the southern to the northern states, in order thereby to realise 
a higher profit, be moreandmore satisfied of the latter having 
been losers by the tariff system as well as the former, though 
not in an equal degree. 

We often hear of the great resources of our country, which, 
it is asserted, require to be developed by means of protective 
duties. The iron, for example, of Pennsylvania, in so far as it 
is rendered, so to speak, available by the exclusion of foreign 
iron, is supposed to become emphatically a source of wealth 
to the country; while, had the foreign article not been 
excluded, it would have remained in the bowels of the earth, 
a voluntary and gratuitous sacrifice of national wealth. I 
need scarcely observe that all this is inconsistent with the prin- 
ciples which have been already explained. If the iron and 
other materials of human industry, that are furnished to us by 
the hand of nature, cannot be wrought into the state required 
by the consumer at a cost equal to, or less than, that at which 
the finished article can be imported from abroad, they are in 
reality of no present value or importance. Is it then a matter 
of no consequence, it may be asked, whether a country is pos- 



POLITICAL ECONOMY. 261 

sessed or not of mines or beds of the different metallic ores, 
or, in general, of what is commonly designated as " natural 
riches V I reply that they are, on the supposition made, a 
desirable possession, in reference to thefuture ; and this simply 
because of the possible exhaustion, in process of time, of the 
more economical sources of supply, — or because of the possi- 
bility of their being rendered in the progress of the arts, on 
account of the peculiar circumstances under which they are 
found, — circumstances at present of no importance, — the 
means of a more economical supply than is furnished to us 
from other sources. 



CHAPTER TX. 



THE SAME SUBJECT CONTINUED. 



When a protective duty is repealed, the branch of industry 
which was protected by it can, of course, no longer be carried 
on advantageously. It will no longer yield the capitalist the 
ordinary rate of profits ; and he will, therefore, transfer his 
capital to other employments. Though the amount of the duty 
had been comparatively inconsiderable, his interests will, in 
most cases, have been affected injuriously by its repeal, owing 
to the impracticability of transferring his capital from one 
employment to another and dissimilar one, without sacrificing 
the more fixed portion of it. Had the duty been a high one, 
he might even be impoverished by the protection which it 
afforded him being suddenly withdrawn. And not the capi- 
talist only, but the labourers also, who are in his employ, aie 
necessarily subjected to loss, and frequently to much distress, 
by a repeal of protective duties. They find at least an equal 

34 



262 THE PRIPfCIPLES OF 

difficulty in transferring their labour from occupation to 
occupation, as do their employers in the transfer of their 
capital ; and besides, the transfer of this capital, implying, as 
it does, the conversion to a certain extent of circulating into 
fixed capital, cannot fail to deteriorate for a time the condi- 
tion of the labourers generally, by diminishing the amount of 
their wages. Again, if extraordinary facilities, by the removal 
of the duties imposed, be suddenly allbrdcd to the importing of 
commodities from abroad, a flow of specie will take place 
from the country in question to all others, in the manner 
previously explained ; which, in its turn, will lead to a sudden 
contraction of the circulating medium, and to all the evils 
accompanying every such contraction. 

On the contrary, when protective duties are first exacted, no 
corresponding inconvenience or distress is apparent, especially 
in a country where, as in the United States, most of the com- 
modities exported are produced in very considerable quantities. 
While the necessity of paying the duties will induce a dimin- 
ished importation by the merchants of commodities from 
abroad, the exports, it is true, will also undergo a proportional 
diminution ; but this will not, it must be obvious, take place as 
suddenly as that of the imports. There will be some time 
during which the changes before described, as intervening 
between the diminution of the imports and the consequent 
diminution of the exports, will occur ; which interval of time 
will have the effect, in only a comparatively slight degree 
however, of concealing from our view the injurious results. 
Where, too, the exports diminished are chiefly of such com- 
modities as are extensively produced in the country, — cotton, 
flour, or tobacco, for example, — the inconvenience incurred 
will be so difiused as not to be felt as injuriously as it would 
otherwise be, and, on this account, not to proclaim itself so 
unequivocally to the observer. Moreover, when the duties 
under consideration are first exacted, a flow of specie into the 
country will result from the imports becoming less than 



POLITICAL ECONOMY. 263 

before ; and the circulating nnedium will, for a time, be 
expanded, instead of contracted, as it would be if those duties 
were to be repealed. 

There are many individuals, of sufficient sagacity in other 
respects, who, in place of realising to their full extent the evils 
of a sudden change in the existing system of things, even 
tliough it be in a right direction, and endeavouring to mitigate 
those evils by passing gradually, instead of suddenly, from the 
system of restriction to that of free trade, attribute the evils 
in question to the latter system, and denounce it accordingly, 
as calculated, more than any other device which its enemies 
could invent, to be ruinous to the country into which it is 
introduced. Without doubt, every change of the kind now 
under consideration should be of a gradual nature, not only 
that time may be allowed for the transfers of capital and 
labour to be effected, but likewise, I may add, in order to 
take away from such individuals as those above alluded to, as 
w^ell as from some of the mere cavillers against the conclu- 
sions of the political economist, the appearance of an 
argument against them, as being contradicted by practice ; 
however beautiful, or even correct in theory they sometimes, 
very strangely, admit them to be. 

Very little needs be said concerning the argument against 
the abolition of restrictions upon commerce, founded on the 
the supposed rights of the individuals who have invested their 
capital and labour in occupations which owe their existence 
to such restrictions, — or concerning the obligation which the 
government of a country is under to protect those rights, by 
maintaining undisturbed all existing investments. If this were 
to be conceded, we ought, in order to maintain our consistency, 
also insist upon the interposition of the government, not to 
encourage the introduction of improvements in the arts, as it 
is in the habit, in most civiUsed countries, of doing, by the 
granting to inventors certain exclusive privileges, but to check, 
to the full extent of their power, the career of improvement ; 



204 THE PRINCIPLES OF 

for it is plain that nothing of the sort can possibly occur with- 
out less or more of injury to some portion of the labour and 
capital of the community. On this view of the subject too, 
steamboats should never have been permittted to supersede the 
various other sorts of craft which in times past used to navi- 
gate our rivers ; nor should the proprietors of turnpike stock, 
or of iiorses and wagons, have been subjected to any incon- 
venience or loss, by the construction, in so many different 
directions, of canals and rail roads. It ou^ht always, indeed, 
to be borne in mind that the removal of all such restrictions 
on man's liberty, as have heretofore prevented the full 
exercise of his productive powers, is perfectly analogous in 
its eflbcts to the inventing of more efficient machinery, or the 
discovery of new and more advantageous processes in the 
arts. And the obligations of the government are the same 
precisely in the one case as in the other. 

I must not forget an argument which has, not unfrequently, 
been urged in favour of the legislative encouragement of 
different kinds of manufactures in the United States ; the 
argument, to wit, that their introduction into the country gives 
employment to a considerable number of women and children, 
who would otherwise be idle, — and that the products of their 
industry are, on this account, to be regarded as a clear 
national gain. This argument may be met by once more 
stating the fact, that, when a government undertakes to encou- 
rage any particular branch of industry, it does not create an 
additional amount of capital, but only causes a certain portion 
of the capital already existing to be transferred from one 
employment to another, — as well as by tracing the consequen- 
ces flowing from this fact. Since the whole amount of capital 
continues unaltered, and, agreeably to what has been already 
shewn, is employed less productively than it was before, it is 
absolutely impossible that the circumstance of a number of 
the women and children of the country being provided with 
occupation by the manufacturers should in any way promote 



POLITICAL ECONOMY. 265 

the progress of national wealth. We may even pronounce 
the labour of these women and children to be a positive evil 
to society, and also to themselves, because the whole labour 
applied under the system of encouragement is less productive 
than the whole labour applied before the adoption of that 
system. 

But as the argument, now under examination, has occa- 
sionally been very strenuously insisted on by the advocates 
among us of a high tariff of duties, I will present the refutation 
of it in another point of view. So long as the same amount of 
capital exists in the country, so long will the portion of it con- 
sisting of wages continue unaltered ; that is, if we assume 
wages in every employment to bear the same proportion to 
the whole amount of capital. On this supposition, the wages 
paid to any class of persons, who were heretofore unemployed, 
will have to be taken from the wages of those who were here- 
tofore the only labourers. Hence, in the case before us, even 
if we suppose the men out of a given population to labour as 
much as they did, what they receive for their labour will have 
been diminished by the amount handed over to the women and 
children. And if a refuge be sought from the consequence 
just deduced, of the diminution of the wages of men's labour, 
by gratuitously supposing the men not to work as much as they 
did before, very little will have been gained in support of the 
argument urged. Few persons will be disposed to admit the 
mere substitution, in any degree, of the labour of women and 
children for that of the adult male population to be productive 
of a national gain. But the supposition which I have made, — 
that the wages of labour bear the same proportion in every 
employment to the whole capital applied, — is incorrect. In 
some employments this proportion is a very considerable one ; 
in others, the case is the reverse. Since, however, any diver- 
sity of the kind furnishes no inducement, as has been proved, 
why we should prefer any one branch of industry to anotlier, 
and why the distribution of the capital of a country shall 



20G THE I'KiNcirLEs op 

become cliilerent from wliat it was, \vc may, for our present 
purposes, manifestly reason as if the supposition made were 
strictly true. 



CHAPTER X. 

EFFECTS OF BOUNTIES — MODIFICATIONS OF THE SYSTEM OF FREE 

TRADE. 

Hitherto I have been treating of the effects of duties 
imposed on the importation of commodities from abroad, as if 
such duties wore the only means of encouraging the domestic 
production of the hke commodities. But the fact is otherwise. 
The encouragement required may be administered by the 
granting of a bounty to tho domestic producer ; that is, by 
directly taxing the community at large for his benefit. In as 
much as his profits cannot eventually be more than the ordi- 
nary profits received in other occupations generally, it is 
evident that the bounty which is of an amount just sufficient 
to enable him to realise those profits will be a national loss, 
without any compensating gain ; or, in other words, a bounty 
of this description will have precisely the same ultimate effect 
as a duty to an equal amount on the foreign commodity 
imported. 

The nature and operation of a bounty being once properly 
understood, there is no one who will hesitate to put aside 
without any farther discussion every objection to the system 
of free trade, in reference to the United States, which is 
founded on the supposed expediency of countervailing the 
effects of a bounty, granted to certain producers by the 
government of Great Britain, or any other foreign government, 



POLITICAL ECONOMY. 267 

•—or who will refuse to apply to the case of the natural distribu- 
tion of labour and capital being disturbed by the granting of 
bounties, all that has been deUvered in the preceding chapters 
of the present book concerning the disturbances of the natural 
order of things by the imposition of duties. 

It may be remarked that, notwithstanding the almost obvious 
analogy just pointed out between bounties and duties, many 
persons among us, who are not backward in expressing their 
opposition to a system of bounties for the encouragement of 
American manufactures, are yet earnest advocates for encou- 
raging them by a high tariff of duties. The national detriment 
is comparatively easy to be perceived in the former case. In 
the latter, the effect produced taking place more indirectly, 
the judgment of the parties adverted to is more apt to be 
imposed upon by the superficial notions on the subject almost 
every where to be met with. 

Every argument in favour of a protecting tariff which I 
deem to be unsound, and which at the same time has some 
appearance of plausibiltiy, has been passed over in review ; 
and I shall now proceed to a statement of some reasons why 
I conceive a modification of the general principle of free trade 
is sometimes admissible to a certain extent. 

Most of these are founded on the expediency of guarding 
against the " evils of change," — an expediency which has been 
already adverted to. The chief source'too, of such evils, is a 
frequent transition from a state of peace to a state of war, or, 
vice versa, from a state of war to a state of peace, and espe- 
cially the latter. As an illustration, take the case of our own 
country ; and let us look at the effects which ensued in respect 
to the distribution of capitJil, on the declaration of war in 
1812 against Great Briiaiu, and again on the return of peace 
in 1815. Previous to the first mentioned event, the legislative 
encouragement of American manufactures was, as every one 
knows, comparatively small ; and it was found more profitable 
to procure most manufactured articles from abroad in exchange 



208 THE PRljrCIPLE8 OF 

for the agricultural products of the country, rather than under- 
take to produce them at home. But the war, by cutting off 
to a considerable extent the commerce with foreign nations, 
ahered the condition of things very materially. This natural 
effect too, of a state of war, was aggravated, in the instance 
under consideration, by the overwhelming power of our enemy 
on the ocean, as well as by the doubling of the duties on 
imports, for the purpose of revenue, which then took place. 
Manufactures, thus powerfully encouraged, sprang into 
existence in the northern and middle states, where, for various 
reasons, the most advantageous situations for them existed. 
Now, on the return of peace, and the consequent repeal of the 
double duties, there was necessarily a reaction. Much of 
the capital and labour which had been invested in manufac- 
tures was transferred to other, and, at the time, more 
profitable employments, — a transfer, implying, of course, a 
considerable abandonment or loss of capital, together with 
great inconvenience and distress among both the capitahsts 
and the labourers who were thrown out of their employ, and 
who could not readily adapt themselves to occupations having 
often little or no analogy with those to which they had been 
accustomed. 

There was another circumstance which, in a very great 
degree, augmented the sufferings of the community in general, 
at the period referred to. I mean the sudden enhancement of 
the value of money resulting from the extraordinary importa- 
tion of commodities other than money from abroad, unac- 
companied by a corresponding augmentation of the amount 
of exports. Why a change of this description in the value 
of money should be productive of evil, needs not to be here 
repeated. It has been sufficiently explained in the preceding 
book. The only point now calling for remark is the factj 
that the imports into the country, at the peace, were aug- 
mented in a greater proportion than were the exports from it. 
This was owing, in my opinion, to two distinct causes. First, 



POLITICAL ECO>OMY. 269 

the ordinary exports from the United States were, perhaps, 
more indispensable to foreign countries, Great Britain 
particularly, than our imports from them were to us. It 
happened, therefore, very naturally, that those countries, on 
the interruption of their commercial intercourse with us, made 
new investments of capital, even to a greater extent than was 
done by ourselves, in order that they might be suppHed with 
what they most wanted : such new investments, also, they were 
not, by any means, as willing to disturb as we were. And 
secondly, for several years previous to the commencement of 
the war, and in a measure during that period, British manu- 
factures had been excluded from the continent of Europe. 
They accumulated, in consequence, in the hands of the 
manufacturers at home; who, rather than undergo the 
inconvenience of transferring their capitals to other employ- 
ments, continued to manufacture, in anticipation of the vent 
for their products which a peace must sooner or later open 
to them. Accordingly, when peace at length did return, the 
accumulated mass was poured into America ; every manu- 
facturer and merchant acting as if every other were not 
doing, or were not hkely to do, just what he did ; and thus 
glutting our market, so as, on the one hand, to cause prices 
to fall ruinously low to the parties concerned, and, on the 
other, to induce a flow of our specie to Great Britain, greater 
still than would otherwise have occurred, — and this, too, 
when the banks of the country had suspended specie pay- 
ments, and when it was desirable they should make every 
exertion possible for the purpose of resuming them. 

Although some of the circumstances which gave occasion 
to the pecuniary disasters of 1815 and the immediately 
succeeding years were of a peculiar nature, and not at all 
likely to occur again, at least to occur again in any thing 
like the same degree, it is quite obvious that causes of such 
disasters will be in action sufficiently, at every conclusion of 
a war, to furnish an argument to the advocates of a protec- 

^5 



270 TUK rniNciPLEs of 

live tariff. This argument will, besides, gain force exactly 
according to the probable frequency of the changes from 
peace to war, and again from war to peace. We might, 
indeed, suppose these changes to take place so very frequently 
as to justify the enactment, by our government, of as high a 
tarifl' of duties as any which the advocates for the legislative 
encouragentent of domestic manufactures have, at any period 
of our history, ventured to propose as a means of protection 
for the branches of industry that have been called into exist- 
ence during a state of war. And it must be evident that 
persons, who are perfectly agreed with respect to the general 
principles of pohtical economy, may yet differ, and perhaps 
even considerably differ from each other, in the amount of 
duty which it is expedient to impose for the purpose of giving 
a greater stability to the employments of capital, — according to 
the different estimates they may form of the probable frequency 
of the occurrence of the changes in question. 

Taking things as they are, and looking at the future pros- 
pects of the country, not only by the light of past experience, 
but also by that which is reflected to us from a survey of the 
subsisting international relations of the civilised world, there 
are probably few political economists who would hesitate to 
give their assent to the imposition of a duty of say Jive per 
cent, upon the value of a foreign commodity on its being im- 
ported into the country ; such a duty being adequate to the 
exclusion of it altogether, and adequate therefore to the 
effective encouragement of the rival American article. That 
which before could be procured for twenty dollars will, in 
this event, require twenty-one dollars to procure it ; and if 
we suppose the whole value previously consumed by us to 
have been a million of dollars, and suppose farther the quantity 
consumed to continue the same as it was, the entire additional 
cost will amount to $50,000, or rather to something less than 
this sum, because the duty imposed, that it may be effectual 
for the purpose intended, should always exceed, as has been 



POLITICAL ECONOMY. 271 

shewn, the difference in the cost of the articles, domestic and 
foreign. On the suppositions which have been made, I need 
not say that such additional cost would be the measure 
of the national loss or sacrifice incurred, for obtaining 
the advantages of a greater degree of stability in the distri- 
bution of the capital and labour of the community. One of 
those suppositions, however, does not correspond with the 
actual facts of the case, to wit, that the quantity of the article 
consumed will remain unaltered. When prices rise, which 
they will do when the cost of production is greater than it 
was, almost every person will be disposed to consume less 
than he did before ; and some will even cease altogether to 
consume the articles in question. Hence the national loss has 
been estimated above at too high a rate. But the proper 
estimate will not be equivalent simply to five per cent, on the 
whole value actually consumed. It is evident that to this must 
be added all the inconvenience, or diminution of enjoyment, 
suffered by that portion of the community who have been 
induced, by the rise of prices, to dispense with some of the 
articles which they were heretofore in the habit of buying, and 
to consume in their stead what, but for this rise of prices, 
they would not have preferred ; so that the loss incurred may, 
notwithstanding, sometimes approach to our first estimate 
of it. 

In respect to many commodities, it is quite possible that 
political economists might be nearly as unanimous, were the 
duty proposed one of ten, in place of five per cent, ad valorem. 
When, however, we come to a still higher duty than ten per 
cent., the dissentients among the class of individuals, of whom 
I am speaking, will soon become exceedingly numerous. And 
my readers need not to be told that duties of fifty or a hundred 
per cent, — duties implying a sacrifice of national wealth in a 
year or two equal in value to the entire annual consumption by 
the community of the commodities taxed, — cannot but be 
regarded as a legislative absurdity. 



272 THE PRINCIPLES OF 



CHAPTER XI. 

OF THE MOST EXPEDIEN'T SCALE O? DUTIES INTERFERENCES 

WITH THE SYSTEM OF FREE TRADE FARTHER CONSIDERED. 

Granting, for the present, the expediency, for the reason 
which has been assigned, of imposing a certain amount of 
duty on the imports into a country, with a view to the encour- 
agement of particular branches of industry, there is a reason 
why the same ad valorem duty should be imposed on every 
commodity imported from abroad ; and this is, impartiality in 
the system of legislation with respect to individuals, or classes 
of individuals. If the government act steadily on the plan 
suggested, its action can scarcely fail to be guided exclusively 
by a view to the general welfare. However urgent any one 
class of influential capitalists may be in their applications for 
farther encouragement, a practical difficulty in the attain- 
ment of their object will be presented by the necessity of 
imposing an additional duty on every thing else imported, as 
well as on the foreign commodity which comes into compe- 
tition with the products of their industry. Under these 
circumstances, the representatives of the people, — wherever 
the assent of such representatives is a necessary preliminary 
to taxation, — will be, evidently, much less disposed to comply 
with the wishes of the applicants, than if their case was the 
only one upon which they were called upon to decide. It may 
be added that a system of legislation, so simple as that now 
under consideration, would have moreover this advantage, 
that it would, perhaps more than any other device which 
could be imagined, have the effect of preserving the purity of 
the legislative body. If the motive for bribing, or otherwise 
corrupting the integrity of the members, would still exist in its 
usual force, the members will not so readily consent to be 



POLITICAL ECONOMY. 273 

corrupted or bribed. The debasing practice too, of certain 
interests, not naturally allied to each other, combining together, 
in order by their united influence to obtain their private or 
local ends, at the expense of the people generally, — a practice 
to which, among ourselves, has been affixed the elegant 
appellation of log-rolling, — would but seldom meet with suc- 
cess, and would therefore fall into comparative desuetude. 
We would, in short, enjoy all the moral, as well as the physical 
advantages, of a system of legislation having general and not 
special purposes in view. 

If a uniform ad valorem duty be imposed on every com- 
modity imported from abroad, two consequences must 
invariably ensue when the existing rate of duty is raised ; in 
the first place, a greater degree of encouragement will be 
yielded to the domestic producers, — and secondly, the public 
revenue will be altered in amount. I say altered, and not 
augmented in amount, because, although in every instance of 
an extensive addition to the tariff of duties in the United 
States the revenue has become greater than it was before, we 
may easily conceive of the duties on foreign goods to be 
advanced to so high a rate as to constitute a bar to all importa- 
tion whatever from abroad, and therefore to exhaust altogether 
the source of revenue. And hence, it is plain, that the public 
revenue may, under different circumstances, be either 
augmented or diminished by raising the general rate of 
duties. 

Now let us suppose, what will appear from the foregoing 
remarks to be quite possible, that, when the rate of duties is 
rendered just high enough to furnish an adequate revenue, the 
expedient degree of encouragement or protection is not 
afforded to the domestic producers, — a state of things, how- 
ever, not very likely to take place in this country. Here we 
would be necessarily forced to abandon the ad valorem 
system of protection, and to impose in certain cases an unequal 
rate of duty. And the question occurs ; — If, for the reason at 



274 THE PRINCIPLES OP 

present assigned, or for any other reason, unequal protective 
duties are to be imposed, what j)rinciple ought to guide us in 
proportioning to eacli other the diflercnt items of the tarift"? Or, 
in other words, why should one commodity be taxed higher, 
and another lower i I will only reply in general terms, that 
those branches of industry which arc productive of the means 
of the national defence against foreign aggression, or of the 
necessaries of life, deserve to receive the aid of the legisla- 
ture in a greater degree than others, all other circumstances 
being the same ; for the inconveniences suffered by the com- 
munity in consequence of a deprivation, or partial deprivation, 
of the articles adverted to, in a period of war, would obviously 
be greater than would be suifered, were they to be deprived 
for a season of luxuries merely. 

After what has been observed concerning the effects of a 
transition from a state of peace to a state of war, and the 
reverse, upon the distribution of the capital and labour of a 
country, my readers will be disposed to think with me that the 
greatest obstacle now existing among the civilised nations of 
the earth, to the general introduction of the system of free 
trade, is the doctrine, so universally practised upon, that the 
property belonging to individuals of a nation at war with 
another may be lawfully captured, and become the property 
of the latter, or of captors deriving from the government of 
the latter their authority to rob on the great highway of the 
ocean. This transfer by a government to privateers of its 
assumed privilege to prey on the property of its enemies is 
generally considered, and perhaps properly so, to be a more 
aggravated iniquity than for it to do the same act by the 
direct exertion of its own power ; and on this account it is 
that the expediency and means of abolishing the practice of 
privateering has been frequently drawn into discussion among 
diplomatists, and its abolition even in one or two instances 
stipulated for by treaty. We may be permitted to hope that 
with the still farther progress of the nations in the career of 



rOLITICAL ECONOMY. 275 

civilisation, this detestable system of legalised piracy will 
cease to be a disgrace to humanity. But the philanthropist 
ought to aim at something beyond this. Indeed, he ought not to 
stop short, so long at least as he is not satisfied of the object 
proposed being a moral impossibility, of the establishment of 
the same degree of respect for the rights of private property 
on the ocean as on the land. The preponderating naval power 
of Great Britain, it must be confessed, renders at the present 
moment the anticipation of the occurrence of such a state of 
things almost Utopian. It is not be expected that she will 
consent to yield up voluntarily, as a sacrifice to the general 
welfare of mankind, any portion of her means of annoying her 
enemy in war, without some compensating gain. In this 
point of view, her overgrown navy cannot but be regarded 
as a nuisance of peculiar magnitude. All other nations should 
exert themselves, in every just and expedient mode, to abate 
it. And what would be productive of an approach at least 
to the result desired, in reference to the matter now before us, 
they should likewise combine together to obtain the recogni- 
tion universally, in opposition to the present British doctrines 
and practice, of the principle that " free ships make free 
goods," or that " the flag of a neutral covers the property of 
an enemy," as well as of the principles of " strict blockade." 

Transitions from a state of peace to a state of war, and the 
reverse, are not the only changes giving rise to sudden and 
frequent transfers of capital and labour from one employment 
to another. It might occasionally be very desirable to counter- 
vail, to a certain extent, the varying legislation of other nations, 
by a corresponding, though temporary, modification of our 
own tariff laws. To illustrate my meaning, let us suppose the 
government of Great Britain to grant to the producers of 
cotton goods so large a bounty as to enable them to have the 
advantage in every description of such goods, over the Ameri- 
can producer, in the market of the United States. The effect 
of this will be to cause, in both countries, a considerable 



276 TUK rnixcii'LEd of 

alteration in the distribution of labour and capital. If this 
state of things wore to continue, a benefit will have been 
bestowed upon us by the British government. We would be 
gainers by the diminished cost of procuring manufactured 
cottons. For a time however, while the transfers of labour 
and capital were going on, much inconvenience, and even 
distress, would be operienccd by both capitalists and labourers. 
To render those transfers more gradual than they would other- 
wise occur, and thereby to alleviate the sufferings of the ])artics 
injuriously affected, if not to remove them almost entirely, 
nothing more would be recjuisitc than to grant a like bounty 
to the American manufacturer as the one granted abroad, or 
to impose an equivalent duty on the foreign commodity when 
imported into the country ; which bounty or duty could be 
then diminished at intervals, until it should be entirely repealed. 
By making in this manner a temporary sacrifice, for the purpose 
of warding off to a certain extent from a portion of the commu- 
nity the " evils of change," the sum of the public enjoyment or 
happiness might, all things considered, be rendered greater than 
it would otherwise be. There is, however, an objection which 
the advocates of free trade would prefer against the adoption 
of the suggested course of legislation, and which it is proper 
should be stated here. In almost every country, the parties of 
free trade and of restriction are arrayed, more or less for- 
mally, against each other ; and for the former to yield ground 
to the latter, even with the intention and understanding of its 
being resumed, after a short period shall have elapsed, might 
be deemed by them to be too hazardous a measure. They 
might find it much easier to impose a duty or bestow a bounty, 
than to withdraw it when once existin":. 

Should the government of Great Britain, instead of granting 
a bounty to the producer in that country of a commodity, 
with a view to enable him to obtain for it the command of the 
foreign market, do the contrary of this, that is, should it 
recall a bounty heretofore granted by it, and which had con- 



POLITICAL ECONOMY. 277 

ferred on the British producer the power of supplying the 
foreign market, or say, more particularly, the market of the 
United States, — a power he did not before possess, — a transfer 
of American capital and labour will take place, as on the 
previous supposition ; but being taken from the capital and 
labour of the country generally, the temporary inconvenience 
resulting in any one branch of industry will hardly be per- 
ceptible, and no legislation will be necessary to lessen it. 

But next, let the British government, after having, in the 
manner just described, called American manufactures into 
existence, retrace its steps, and restore the bounty which had 
been repealed. By so doing, those manufactures may be quite 
as speedily annihilated as they were at first estabUshed. And, if 
the government of our own country remain all the while a pas- 
sive spectator of what is going on, it is clear that this twofold 
process may be continually repeated to the great injury of our 
people. It is true that neither the British, nor any other 
government, is likely to act in thecontradictory manner above 
described ; since they could not do so without occasioning a 
similar injury to their own subjects. Nevertheless, were the 
government of any one country in reaUty so to act, it would 
be the imperative obligation of every other government to 
modify its tariff of duties, or system of bounties, in such a 
manner as to prevent as much as possible the infliction upon 
society of the " evils of change." 



36 



278 THE PRINCII'LES OF 



CHAPTER XII. 

THE SAME SUBJECT CONTINUED. 

The efTects of the imposition or repeal of bounties or pro- 
tecting duties in any one country upon other countries is, 
indeed, very far from being generally understood. I wiU 
illustrate them farther in the case of a repeal of a duty, 
and the reader will then not be at a loss to understand what 
will happen in every case where a protecting duty is imposed^ 
instead of being repealed. 

Suppose that, but for the existence of the British corn laws, 
corn would be annually exported from the United States to 
Great Britain to the value of ten millions of dollars. The 
reader needs not to be told that this supposition is made only for 
the sake of argument; and that, were those laws to be in fact 
repealed, it is not at all improbable, from a comparison for a 
series of years past of the prices of the different kinds of grain 
in the two countries, that very little of it would ever be 
exported from this country to the British islands. Ten millions 
of dollars could not be added to the value of our exports 
without a corresponding addition being made to our imports, 
on the principles already explained. If our imports were not 
to increase when our exports were doing so, the balance would 
have to be paid for in specie ; and, if paid for in specie, a 
general rise of prices must ensue at home, while the contrary 
will be the case abroad. An additional motive for importing 
and a diminished motive for exporting commodities, other than 
money, will then exist. The imports must, of course, go on 
increasing while the exports will go on diminishing /rom their 
augmented amount ; until at length they will be again in 
equilibrium with each other, and specie will cease to flow 



POLITICAL ECONOMY. 279 

from the one country to the other. When this has taken place, 
it is evident that no additional amount of commodities can be 
annually exported without leading to a corresponding addi- 
tion to our ordinary imports. Hence too, a repeal of the 
British corn laws, on the supposition above made, would be 
necessarily followed by a greater consumption in the United 
States of British goods of a description to come into competi- 
tion with our own manufactures ; and if the repeal be a sudden 
one, a temporary enhancement of the protecting duties in their 
behalf would be desirable. This effect of the repeal of 
restrictions, on our liberty of exporting the products of Ame- 
rican industry to other parts of the commercial world, is 
plainly the reverse of what the advocates of a high tariff sup- 
pose it would be. They indeed often, under a conviction that 
our manufacturers could then sustain themselves without any 
legislative protection, go so far as to proclaim their wiUing- 
ness to give up their favourite system, provided foreign 
nations would at the same time admit our products freely into 
their ports. 

The only remaining reasons which seem to me to have any 
weight to induce a modification of the piinciples of free 
trade, in their application, at least, to the circumstances of an 
agricultural community, and to one continually spreading 
itself out, as in the United States, over a vast extent of a 
hitherto uncultivated wilderness, are the two following. Fiist, 
that the introduction of manufactures, even at the national 
sacrifice implied by the imposition of a duty on imports, or 
by the enactment of a direct system of bounties, would 
furnish a greater diversity of occupations, and would, in con- 
sequence, be favourable to the development by the people of a 
greater intellectual, and therefore also ultimately of a greater 
physical power. Every individual could then more readily 
find an occupation adapted to him ; and inventions in the 
various arts of life would be likely to be made more rapidly 
when the opportunity was afforded of comparing together, as 



v> 



280 THE PRINCIPLES OF 

would then too be the case, a greater number of the processes 
actually employed in them. Secondly, the population of a 
country may be difliised over so very wide a surface, when 
compared with its numbers, as to subject it to a considerable 
moral disadvantage. A greater proportion of the people must 
then, almost necessarily, remain destitute of the means of 
education as well as of the services of religion, or must possess 
them in a diminished extent. 

I shall not undertake to estimate with any exactness the 
deo-ree in which these arguments in support of the system of 
restriction apply to the circumstances of our own country; and 
shall here merely oppose to them some considerations which, 
ahhough only secondary in importance to what has already 
been adduced to shew that the natural distribution of capital 
and labour is the one most advantageous to the community at 
large, ought not to be entirely passed over in silence. The 
considerations adverted to will, not improbably, be regarded 
by the reader as constituting an adequate set-off for the above- 
mentioned restrictive arguments. 

Although it is unquestionably true that every occupation is 
equally advantageous, on the average, to both the capitalists 
and the labourers concerned, — and therefore to the country 
in general, in so far as the capitalists and labourers are cajpa- 
hie of appreciating the various circumstances of advantage or 
of disadvantage connected with it, — it is likewise true that 
men are in most cases apt to exaggerate the prospects of 
advantage, and to do the reverse of this in reference to those 
of disadvantage. This happens more especially to the young, 
upon their entrance on the profession or career which they 
have chosen for themselves, or upon their entering on any 
temporary undertaking. But, at every period of life, we 
perceive individuals speculating in lotteries, in the stocks, and 
in property of every description, on the same principle ; even 
with a full knowledge of the chances of success being against 
them, every one looks with a less or more sanguine expecta- 



POLITICAL ECONOMT. 281 

tion to a prosperous result, and, if success does not arrive, 
experiences something like a feeling of surprise. Consistently 
too with all this, those occupations which are the most fluc- 
tuating in the value of their products will, comparatively 
speaking, have more capital and labour applied to them than 
others will have. Those which are productive of the luxuries 
will be, in this manner, more crowded than others which are 
productive of the necessaries of Ufe; manufactures, conse- 
quently, more so than agriculture. 

And there is another disadvantage of manufacturing 
industry, very closely connected with the one just mentioned. 
The sudden declension to which many branches of them are 
liable from a sudden diminution of demand, — a diminution of 
demand that may arise from a change in the fashion of the 
day, — will frequently throw a large number of labourers out 
of employment, who will be obliged for a time to content 
themselves with a reduced rate of hving. They wall thus 
have their ideas lowered of what constitutes for them a com- 
petent livelihood, and their condition will have a tendency to 
become permanently degraded. Other circumstances being 
the same, we have here then a reason of some weight for 
postponing the period of the introduction of manufactures into 
a country, and, a fortiori, a reason for not forcing them into 
existence, by the instrumentality of legislative enactments, 
before the natural period of their introduction shall have 
arrived. 

Again, if the condition of the labourers in any one depart- 
ment of industry be depressed from any cause below the rate 
at which it would be but for the action of that cause, it will 
necessarily happen that it will come to be depressed in every 
other ; or, in other words, the wages of labour generally will 
be lowered. 

In a preceding part of the present treatise, it was, moreover, 
shewn that the command which the mass of the community 
at any time possess over the necessaries and luxuries of life is 



282 THE PRINCirLES OF 

determined, oilier circumstances being the same, by their 
mural condition. To say here, therefore, that the general 
rate of wages is reduced, is equivalent to saying that the 
moral condition of the people generally has been depreciated. 
There is also an argument against a protecting tarilf which 
I have never seen stated by any other writer on political 
economy, and which, though not of much comparative 
moment, deserves, in my opinion, not to be passed over 
without mention in this place. On the first enactment of such 
a taritr, or on its being at any time rendered higher than it 
was, the reader will recollect that specie will flow for a season 
into the country where tliis has taken place from all others 
with which it has intercourse, that is until the due proportion 
between the exports and imports, which had been disturbed 
by the interference of the government with the pre-existing 
state of things, is again restored. It is plain that the quantity 
of specie in the country will be greater according as a greater 
degree of protection or encouragement has been afforded to 
the various classes of domestic producers, by means of the 
imposition of duties on commodities imported from abroad ; 
— and the same conclusion will manifestly hold good if the 
encouragement be afforded through the instrumentality of a 
system of bounties, or in any other supposable way. Hence 
a nation needs only to adopt the restrictive as opposed to the 
free trade system, and it will secure to itself a permanently 
augmented specie circulation, and therefore also a permanently 
augmented circulating medium, in whatever proportions of 
paper and metallic money this may be composed. But will an 
augmented circulating medium be an advantage to a country 1 
After what has been delivered concerning money in my third 
book, I hope there will be none among my readers who will 
for a moment hesitate to reply in the negative. In that place, 
it appears to me that I have satisfactorily shewn it to be a 
matter of great indifTerence, looking at permanent results, 
whether the circulating medium be large or small ; the value 



POLITICAL ECONOMY. 283 

of it, regarded as a whole, being, whether large or small, 
invariably the same. And so far is the retaining a greater 
amount of specie in the country an advantage to it, it is a 
positive disadvantage ; for every dollar so retained excludes 
an equal value of other commodities, which might be procured 
in exchange for it by exporting it abroad. The whole amount 
of the specie unnecessarily retained should be therefore 
regarded as a national loss. 

The conclusion just arrived at has been deduced on the 
supposition of the state of free trade having been disturbed by 
the^rs^ enactment of a tariff of duties on imports. It is evident 
that the same conclusion will result if we suppose the existing 
protecting tariff to be added to by the enactment of other 
protecting duties. And again, it must be equally evident that 
there is nothing in my reasoning which is not as applicable 
when the duties imposed on imports are productive of 
a revenue to the government, as when they operate prohibi- 
torily ; that is when the imposition of such revenue duties is 
followed by the importation of a diminished value of commo- 
dities from abroad ; which might not, however, be always the 
case. 

Every condition of society, it may be observed in the next 
place, is subjected to alteration from the inconstant passions 
and variable opinions of men ; but none is less liable to fluc- 
tuation, and especially to great fluctuation, than that which 
is the most natural, or in other words than that which 
requires the least amount of legislation to secure its continu- 
ance. The laws of nature are as immutable as the will of 
Him who has ordained them : human laws, on the contrary, 
only endure for a time, and often, even when least open to 
well founded objection, for a very short period of time. That 
•prosperity therefore, which is the least dependent upon artifi- 
cial regulation, will be the most stable, and for this reason the 
most desirable. And here we have another argument in favour 
of the system of free trade. 



284 THE PRINCIPLES OF 

I also maintain tlic expediency of leaning, in every duubtful 
case, towards a freedom of trade with other nations rather 
than in the contrary direction, on account of the freedom in 
question being the most desirable condition of things, if 
universally introduced; and because the only mode of gradu- 
ally introducing it is by the more enlightened among the 
nations of the earth setting the example of advancing in the 
right direction, whenever an opportunity is oirered to them of 
doing so. Free trade, indeed, should always be looked upon 
as a goal which all the nations are, in the course of improve- 
ment, to strive to arrive at eventually. 

And this is not the only point of view in which the cause of 
free trade is likewise the cause of civilisation. May we not 
hope that, when, by the gradual removal of the restrictions 
which at present, almost every where, impede the intercourse 
of one country with another, this intercourse shall become 
every where more and more extensive, the extreme incon- 
venience consequent upon the interruption of it by a sudden 
change from a state of peace to a state of war, together with 
the inconveniences which must ensue from the transfers of 
capital and labour to which the changes from peace to war 
and from war to peace give occasion, will tend to lessen the 
frequency as well as the duration of actual warfare, and to 
substitute the public opinion of mankind in place of the mus- 
quet and the sabre as an arbiter of the disputes of nations ? 
But however the reader may respond to the question just put, 
he will be prepared, with the writer, to look upon the princi- 
ples of free trade as contributing to the peace of the world, 
and to the general progress of human civilisation, by their 
inconsistency with the notion still too prevalent, that what is 
gained by one nation, by means of its foreign commerce, is 
gained at the expense of some other, — and by their leading, on 
the contrary, to a firm conviction of the prosperity of any one 
country contributing to that of every other, on account of its 
tendency to render the commerce between them ever more 



POLITICAL ECONOMY. 285 

and more extensive, — a commerce which is shewn to be, of 
necessity, mutually advantageous to all the parties con- 
cerned. 



CHAPTER XIII. 



THE SAME SUBJECT CONTINUED. 



Long as I have already dwelt on the subject, of the tariff 
and free trade, I deem it expedient, before quitting it, to point 
out a few of the mistakes, in addition to those already 
adverted to, into which the parties have fallen, by whom it 
has been agitated in this country. In doing this, some light 
cannot fail to be shed on the application of the principles 
which may now be regarded as having been established. 

At the expiration in 1815 of the war with Great Britain, a 
tariff of duties was enacted by Congress, intended, on the 
one hand, to furnish the general government of the Union 
with an adequate revenue, and, on the other, to administer a 
certain amount of protection from foreign competition to the 
American manufacturers. Although this protection mio-ht 
not, at the time, have been judged by many of them to be 
large enough to secure the accompHshment of the intended 
object, very few suspected that they would, before any consi- 
derable period should have elapsed, become earnest solicitors 
with the government for the enactment of a scale of duties on 
foreign imports, which they themselves would not have hesi- 
tated to have previously pronounced to be, if not extravagant, 
at least altogether unnecessary. Whence did this mistake on 
their part arise? And how was it that, notwithstanding the 
acquisition of increased skill by the American manufacturers, 

37 



286 THE PRINCIPLES Ot 

the tariff of 181G was followed by that of 1824, and this 
again by that of 1828, without entirely satisfying the demands 
of their advocates 1 The chief reason for all this seems to 
me to be found in the propensity, before a-dvcrted to, of each 
member of society to act independently of all others, in the 
disposition of his capital and labour. There is nothing more 
common than to see people acting in this respect, just as if the 
very same considerations which have influenced their minds 
were not likely to influence the mind of every one else. So 
when, in consequence of the protection or encouragement 
bestowed upon any particular branch of industry, it has 
become profitable to invest capital in it rather than in other 
branches of industry, the capitalists will seldom make due 
allowance for the competition of one another, and will engage 
in the protected employment to such an extent as to cause it to 
yield less than the ordinary rate of profit. It is true that such 
inequality in the rate of profit would after a time be corrected 
by the transfer of capital in the opposite direction. But in the 
meanwhile, before this would take place, the parties concerned 
in the protected employment would, very naturally, complain 
that the protection received by them v/as less than they ought 
to have, and be clamorous for getting more ; and if more be 
then granted them, the same series of consequences will recur. 
And we have here an account of what actually ensued 
upon the successive enactments of the different tariffs above 
mentioned. 

In accordance with these views, we find that some few of 
the American manufacturers, who, in consequence of superior 
skill, or superior advantages of situation, were making larger 
profits than the manufacturers generally, felt no desire for, or 
were even opposed to the raising of the tariff of duties in 
1824 and 1828. They regarded the losses to which they 
would not fail to be subjected in the first instance as 
equivalent, or more than equivalent, to the advantages which 
they might ultimately derive from any measure of the kind. 



POLITICAL ECONOMr. 287 

The mistake of supposing adequate encouragement to have 
been given by the government to the manufacturers of the 
country, on the enactment of each of our successive tariffs, 
I need scarcely mention was common with them to their 
opponents. 

It is not requisite for me to repeat how it invariably happens, 
on the imposition of a certain amount of duty, that, while the 
imports into the country are diminished, the exports become 
also diminished in the same proportion ; and also that both 
exports and imports undergo a diminution to an extent less, 
and sometimes considerably less, than the value of the formerly 
imported, but now prohibited articles. I may now take for 
granted that all this is sufficiently familiar to my readers. 
That it was very far from being understood at the time 
adverted to, was of material injury to the anti-tariff cause. 
The prophecies, put forth by its advocates, of the destructive 
consequences to our foreign commerce, to result from an 
increase of the duties on imports, were, more than once, 
contradicted by the event, and furnished ground to their 
opponents of a renewed confidence in their own specula- 
tions, as well as of an additional distrust in the conclusions 
of political economy. 

Every duty on a foreign article imported into a country, 
by having, besides its direct effect of diminishing, or entirely 
preventing, the importation into it of the article in question, 
the incidental effect of promoting the importation of other 
foreign articles in greater abundance than before, cannot 
but act in a certain degree as a discouragement to the domestic 
producers of similar articles. Hence it is a mistake to suppose 
that the encouragement afforded in any particular instance is 
always to be measured by the amount of the imposed duty. 
Thus, if a duty of thirty per cent, is just sufficient to enable 
the American manufacturer of a certain article to estabhsh his 
business, a portion of the thirty per cent, may have become 
necessary for the purpose of counteracting the opposite ten- 



288 THE PRINCIPLES OF 

dency of other duties previously imposed. And because of 
the fall in the price of any commodity, when permitted to be 
imported after tlie enactment of a protecting tariff of duties, 
a fail of price necessarily implied, by a greater amount of 
it being in that case imported than before the imposition of 
duties upon other articles, — taken in connection with the 
circumstance of the prices of things having previously fallen 
abroad on account of the imposition of those duties, — my 
readers will easily perceive the inaccuracy of saying, as some 
writers have said, that the sacrifice which a nation makes 
when it protects the production at home of any article by 
prohibitory acts, is to be measured by the excess of the cost 
of producing it at home over the cost of actually procuring 
it at the time from abroad, were the prohibition of its impor- 
tation to be removed. The true measure is, plainly, the excess 
of producing the article at home over that of procuring it 
from abroad, if all legislative measures restricting its trade 
loith other nations were to he re-pealed. 

The circumstance of a duty imposed upon an article of 
foreign importation operating at the same time as an encour- 
agement to the importation of other articles from abroad, and 
therefore as a discouragement to the domestic producers 
generally, will in part account for the disappointment experi- 
enced by our manufacturers in not being benefited by protective 
duties to the full extent anticipated by them. 

When the tariff of duties is lowered, the reader can now 
also understand how it is that the injurious effects resulting to 
the domestic producers is mitigated by the partial encourage- 
ment which the lowering of any one duty administers to them ; 
and consequently, how it may have happened that the com- 
promise act of 1832, by which the duties on imports were 
gradually reduced, has not been as injurious to the manufac- 
turing interests of the United States as might, at first, have been 
supposed it would be. 

It must now also be apparent that there are two reasons. 



POLITICAL ECONOMY, 289 

independently of the advancing population, and therefore con- 
sumption, of the country, why, in despite of the repeatedly 
augmented protection bestowed, until 1832, on the American 
manufacturers, the revenue derived by the general government 
from the duties on foreign imports should have been rendered 
always greater after every augmentation of protection than it 
was immediately previous ; first, the higher duties exacted on 
the commodities still imported ; and secondly, the circumstance 
of these being imported to a greater amount than heretofore,for 
the reason above assigned. 

If the tariff of duties may be so raised as to accomplish 
both the objects, of adding to the revenue of the country, and 
of giving an increased protection to the manufacturing inter- 
ests, the contrary must likewise be true, namely, that the 
tariff may be so reduced as to diminish as well the public 
revenue as the protection enjoyed by the manufacturers. These 
two propositions are, indeed, so very obviously true that no 
one will be found to controvert them. 

But there are not a few persons who go farther, and look 
upon it, if not as impossible, yet as a matter of extreme diffi- 
culty, to raise or lower the tariff of duties so as to produce, in 
either case, one of the effects indicated, and not at the same 
time produce the other. They have puzzled themselves in 
vain, with an attempt to solve the problem how the revenue 
might be diminished and a surplus in the pubUc treasury got 
rid of, without removing the protection bestowed on the 
manufacturers any faster than it is in process of being removed 
by the operation of our existing laws. In order to attain this 
end, all that would be necessary would be, in the first place, 
to reduce the duties on all sorts and qualities of goods which 
are at present imported from abroad, or on a sufficient number 
of them. But if this be done, experience in every similar case 
tells us that the value of the imports will be greater than they 
were before; and if so, the revenue will not be reduced 
by a given diminution of the duty as much as might have been 



290 TUE rillNCIPLES OF 

at first supposed. Our remedy for the existence of any con- 
sequent excess of revenue will, of course, be to lower still 
farther the rate of duty. That wc have it in our power, by 
going on in this way, to reduce the revenue in any degree 
we may choose, will hardly be denied by any one ; since it 
is manifest tiiat, by carryingon the process described, the duty 
may be lowered to nothing, and the revenue wholly annihilated. 
Let us, then, suppose the public revenue reduced to the desired 
extent, by the requisite alteration in the revenue duties, with- 
out touching those which are of a protective character. I 
maintain that, for the purpose of administering precisely the 
same degree of protection as before, those of the last mentioned 
description will also have to be altered, excepting in the 
peculiar case of the quantity of the articles imported bearing 
just such a relation to the diminished value of a given portion 
of them as to retain the imports, considered as a whole, of the 
same value as at first. Should that value be less than it was, 
the consequences will be similar to those which were shewn to 
take place in the case of the imposition, or increased imposi- 
tion, of prohibitory duties ; that is, the value of the exports will 
become gradually less, and specie will for a time flow into the 
country. When the ordinary proportion between the exports 
and imports, as well as the equilibrium of the precious metals, 
shall at length have been attained, the prices of commodities 
generally will be higher at home, and lower abroad, than before 
the reduction of the revenue, — a state of things manifestly unfa- 
vourable to our manufacturers. Such of them as had been pro- 
tected by a duty no higher than was just sufficient to exclude 
their foreign competitors from the American market will find 
themselves at a disadvantage, and will require additional legis- 
lative protection to enable them to stand their ground. It is, 
moreover, worthy of remark that if, in this state of things, the 
duties on the protected articles be not raised, it is very con- 
ceivable how, notwithstanding the diminution in the value of 
the imports of those articles which do not come into competi- 



POLITICAL ECONOMT. 291 

tion with our own manufactures, the renewed importations of 
certain articles which do come into competition with them 
may cause the value of the imports, and therefore of the 
exports, to equal or exceed what it had been. If the value of 
the articles heretofore imported be, on the contrary, greater 
than they were before, and this will very often be the case, 
opposite consequences to those which have been described 
will ensue, — that is, an encouragement, and not a discourage- 
ment, will be administered to the domestic producer by the 
reduction of the revenue duties. To maintain the manufac- 
turers on their former footing, it will be requisite to reduce, 
instead of raising, the duties imposed for their benefit on the 
imports from abroad. I may add that there can scarcely be 
a doubt of their having derived a benefit, since the passage of 
the famous compromise act, from the repeal or reduction of 
revenue duties compensating in part the loss to which they 
have been subjected by the lowering of the duties which 
operated prohibitorily on foreign imports. Of this, however, 
the reader will be enabled to judge for himself by a comparison 
of the tables of exports and imports, annually pubHshed by the 
government. 



*^92 THE PRINCIPLES OF 



CHAPTER XIV. 

O^ THE TERMS AMERICAN SYSTEM, AND AMERICAN INDUSTRY- 
REMARKS ON THE DOCTRINE THAT A TAX UPON FOREIGN IMPORTS 
IS INCIDENT ON THE PRODUCERS OF THE COMMODITIES WHICH ARE 
EXPORTED IN EXCHANGE FOR THEM. 

In the course of the preceding remarks, I have occasionally 
spoken of the sacrifice made by a nation for the benefit of a 
particular class, by means of the duties which it imposes on 
its foreign imports. However convenient such language may 
be, it is very liable to be misunderstood ; and it has in fact been 
often misunderstood by being taken in too literal a sense. It 
is, therefore, important to explain it distinctly. If the capital of 
the favoured class were always applied under similar circum- 
stances of advantage and of disadvantage in respect to situa- 
tion, or, in other words, if no portion of it paid any rent, it 
could in no case yield to its owner more than the ordinary 
rate of profit. Whatever benefit the class in question may 
then derive from the duties imposed could only be temporary. 
Tlie case supposed is, however, not always that of our manu- 
facturers, to which our attention has been latterly so much 
directed. The situations or sites which they occupy are, in 
some branches, adapted in very diflferent degrees to tlie pur- 
poses they have in view ; so that while some pay Uttle or no 
rent, others pay a considerable amount of it to the proprietors 
of the soil. Here it is evident that those manufacturers alone 
who occupy and possess the situations where a rent is yielded 
are permanently benefited by the restrictive measures of the 
government. All others, had the measures of the government 
not induced them to invest their capitals in manufactures, 
would have been able to make equivalent profits in some other 



POLITICAL ECONOMY. 293 

occupation. They would, indeed, have been able to make 
more than equivalent profits under a system of free trade ; 
because, under such a system, a greater amount of production 
would take place, and both profits and wages would have a 
tendency to be higher than under one of restriction. 

What has just been said in reference to the manufacturers, 
it may be mentioned, will apply to the case of the agricultu- 
rists, wherever legislative encouragement has been bestowed 
upon them ; and will apply to them in a still greater degree, 
because agriculture is that department of industry which 
presents the most remarkable as well as most numerous 
illustrations of the payment of rent. There is, however, this 
diflference in many countries, — Great Britain, for example, — 
between manufactures and agriculture ; that while, in the 
former, the receiver of profits and the receiver of the rent, 
where rent is paid, is one and the same person, in the latter 
they are most commonly distinct from each other. It will 
follow, accordingly, that the landlords, and not the farmers, 
are benefited by the British corn laws. 

To proceed : a mistake has, without doubt, been committed 
by many advocates among ourselves of the system of restric- 
tion, in designating it as the American system, and in announcing 
its object to be the protection of American industry. Although 
designing men may have, not seldom, employed these terms 
with an intention to mislead, being aware of the influence 
upon their fellow-men of a good or a bad name in determining 
their opinions, even on the rnost important points, and this 
sometimes independently of any argument ; very many well- 
meaning persons have honestly believed that the question at 
issue between the tariff and free trade parties was whether 
the industry of their countrymen or that of foreigners should 
have a preference given to it by our own citizens, and by our 
own government. Operated upon by the names American 
gystem and American industry, they were, in some instances, 
led to look upon their adversaries very much in the light of 

38 



294 THB PRINCIPLES OP 

traitors to their country, and as deserving, in consequence, of 
the public odium and indignation. All this has, however, 
passed away; and we might now almost imagine that it 
had never been. Yet it is possible that the discussion which 
gave rise to it may at some future time be again renewed. 
Partly for this reason, and partly on account of the singular 
illustration the subject presents of the misapplication of terms 
in the discussions of political economy, I have noticed it in 
this place. To repeat what has already been mentioned, the 
true question at issue between the advocates of free trade and 
the advocates of restriction is, whether the natural distribution 
of capital, or another distribution of it, the result of legislative 
regulation, is most advantageous to a country. The same 
amount of capital is employed in both cases alike ; the only 
difference being that, in the one, a certain portion of capital 
is applied to the production in the country itself of commodi- 
ties, which are procured, in the other, by the application of 
the very same capital to the production of other commodities, 
which are destined to be exchanged for them when they are 
introduced into the country from abroad. These too, because they 
are always procured in exchange for the products of our own 
citizens, are to all intents and purposes entitled to be likewise 
considered as the products of American industry. And the 
system of free trade is, therefore, quite as much entitled to be 
denominated the American system as is the system of restric- 
tion. I have said quite as much entitled : it would have been 
strictly proper, on the principles already, I hope, successfully 
established, to have said more entitled to be denominated the 
American system ; for the free and uncontrolled distribution 
of capital and labour is tiie most productive distribution of 
them, and is consequently that which is calculated to give to 
both capitalists and labourers the largest command over the 
necessaries and luxuries of life. 

Much more space might be occupied in noticing the 
errours of our writers and speakers on the subject now under 



POLITICAL ECONOMY. 295 

examination ; but I will content myself with one more only. I 
mean the remarkable doctrine, which was first broached by a 
southern statesman of high standing, that the duties imposed 
on foreign imports are eventually paid, not by the consumers, 
as is generally supposed, but by the producers of the commo- 
dities exported in exchange for those imports. It followed from 
this doctrine that the cotton growers of the United States 
were sufferers from the operation of our tariff laws to a 
degree altogether extraordinary ; and that, while the country 
north of the Potomac experienced from them all the benefits 
they bestowed, the country to the south of that river expe- 
rienced from them nothing but unmitigated evil. All this was 
very well fitted to aggravate the hostility of a considerable 
portion of our citizens to the protective system, as if existed 
among us previous to its modification and gradual repeal by 
the act of 1833 ; to which act it may have in a certain degree 
happily contributed. My readers nevertheless, if they have 
adopted the principles which I have attempted to establish in 
the present treatise, will not hesitate to reject the doctrine in 
question as an illegitimate support of the liberty of commerce. 
The duty on any article, although levied in the first instance 
on the importing merchant, has been shewn to be ultimately 
incident on the consumer. This has, at least, been shewn to 
be so when the article taxed still continues to be imported ; 
and that it is so when, in consequence of the duty operating 
prohibitorily on foreign imports, the article consumed is a 
domestic one, is an obvious inference from the cost of pro- 
curing it, and therefore its price, having been enhanced, as has 
also been previously shewn, by the amount of the duty im- 
posed ; provided, of course, the duty imposed be just equal to 
the difference in the cost of procuring the article from abroad 
and producing it at home. To establish the production of it, 
however, at home, it will be recollected that a duty somewhat 
greater than this will be requisite. I may observe that it is 
often much greater ; in other words, it is greater than what ia 



29G rns pbincifles of 

necessary for the object in view. If a duty of ten per cent, 
will exclude the foreign article, it must bo a matter of entire 
indiflerence with the home producer, as well as with the 
community jwhether the duty imposed shall be one of ten or a 
hundred per cent. Any larger duty than ten per cent, is, under 
such circumstances, merely nominal. 

But while the duty will, in every instance, fall upon the 
consumers, and not upon the producers of the articles hereto- 
fore exported, the latter will not fail to suffer a certain degree 
of inconvenience and loss. The imports into the country 
cannot be diminished, without the exports also becoming less 
than they were before. A partial transfer must take place of 
the capital of the producers adverted to ; and such a transfer 
implies that a loss has been incurred by the capitalists, — a 
loss, moreover, which is the greater according to the difficulty 
of effecting the transfer. Now that the difficulty of transferring 
the capital of the cotton growers to most other employments 
is extremely great, cannot be denied. There are, however, 
two considerations to be adduced, of a nature to satisfy the 
reader that the amount of the injury, notwithstanding this, 
inflicted on them, instead of being greater than might at first 
have been supposed, was after all comparatively small : in the 
first place, I shewed that the whole amount of imports, and 
consequently the whole amount of exports, was always 
reduced by a less amount than that of the articles whose 
importation has been prohibited ; and secondly, a home market 
for raw cotton was generated by our tariff" laws, as a substi- 
tute« to a considerable extent, for the loss in part, by the 
growers, of the foreign market. 

It may be added that whatever temporary benefit may have 
been conferred on the cause of free trade by the propounding 
of the doctrine just refuted, it is calculated like every other 
doctrine founded in errour, to do an eventual injury to the cause 
it is adduced to support. The sooner, too, so bad an argument 
is discarded the better. Should the contest between liberty 



POLITICAL ECONOMY. 297 

and restriction, in relation to commerce, be again revived in our 
country, we may, accordingly, hope that no individual of high 
political standing will be disposed to employ it. And after the 
investigations to which the student of political economy may 
have been introduced by the remarks which have been made 
in the present book, I feel confident that he will be ready to 
express his conviction that good arguments in a sufficient 
number, and of sufficient force, are to be found in support of 
free trade, torender unnecessary the use of any bad argument 
for this purpose, even though such an argument could in 
reality serve to promote it. 



298 THH PRINCirLES OF 



BOOK FIFTH. 



ON THE INTERFERENCE OF INDIVIDUALS AND OF GOVERN- 
MENTS WITH THE NATURAL ORDER OF THINGS, FOUNDED 
ON OTHER GROUNDS THAN THE UNEQUAL PRODUCTIVENESS 
OF THE DIFFERENT BRANCHES OF INDUSTRY. 



CHAPTER I. 

ANALOGY IN THE EFFECTS PRODUCED BY THE INTERFERENCES OF 
INDIVIDUALS AND OF GOVERNMENTS WITH THE NATURAL DIS- 
TRIBUTION OF CAPITAL AND LABOUR THE QUESTION EXAMINED, 

AS TO WHAT PROPORTION OF A PERSON'S INCOME IT WOULD 
MOST CONTRIBUTE TO THE NATIONAL WELFARE FOR HIM TO 
SAVE. 

The expediency of an interference, by government, with 
the natural distribution of the capital and labour of a country, 
has been maintained, in all the instances of such interference 
already considered, on the ground of the various branches 
of industry, in the actual circumstances of society, not being 
equally productive of wealth. Other interferences however, 
of a different character, still remain to be made the subject 
of discussion. 

And besides these, my present book will embrace an inquiry 
into the effects of certain changes in the condition or circum- 



POLITICAL ECONOMY. 299 

Stances of individuals, or of associations of individuals, which 
might very possibly become, vi^here they have not yet become, 
the ground of legislative action. 

In the preceding book, as the reader will have observed, I 
omitted to maka any mention of the conduct to be adopted by 
the several members of a community, in consequence of the 
opinions they may have formed respecting the comparative 
productiveness of the different branches of industry ; having 
then confined myself to the course which it has been thought 
expedient for the community regarded as a whole, or, which 
is the same thing, for the government, acting in behalf and 
with a view to the welfare of the whole community, to pursue. 
There was, indeed, no necessity for me to have done other- 
wise than I did ; since the very same arguments, which were 
adduced to shew why the government should or should 
not act in a particular manner, are equally applicable, as 
must be manifest to my readers, to shew the propriety of 
individuals acting, or abstaining to act, in a similar manner. 
But another reason for saying nothing in reference to the 
action of individuals, was the fact that very few persons have 
ever deemed it to be worth while for them to concern them- 
selves in their private relations with the public welfare. Very 
few persons, for example, even among the most zealous advo- 
cates of a high tariff of duties for the purpose of administering 
adequate encouragement to the American manufacturer, have 
hesitated, where in their opinion adequate encouragement was 
not administered to him, to purchase and to consume the 
foreign article in preference to the corresponding domestic 
one, if the former were procurable at a price in the smallest 
degree lower than the latter. 

The inconsistency of their so acting falls rather under the 
animadversion of the moralist than of the political philosopher. 
Yet I may be permitted to remark here, that there can be no 
escape on their part, from the charge of bemg inconsistent 
witli themselves, in the inconsiderable amount of the effect it is 



300 THE PRINCIPLES OF 

in their power individually to produce. It seems to mc that 
a man might as well refuse to pay a just debt to his creditor, 
in a season of general pecuniary distress, on the plea that, 
because so many other debtors had been unable to fulfil their 
engagements to the creditor, he also was not in conscience 
bound to pay him his debt, — as that a " tariff man" should refuse 
to encourage the manufactures of his countrymen, by clothing 
himself in them at a higher price than he would have to pay 
for foreign goods, on the plea that the government, or the 
country at large, would not agree, by raising the price artifi- 
cially of those foreign goods, to force, so to speak, a prefer- 
ence universally for domestic manufactures. 

Instances will occur in the discussions that are to follow, in 
which, unlike those above adverted to, it may be nearly or 
quite as important to trace the course most expedient to be 
pursued by an individual as by the government of a nation ; 
and although that course is in the one case perfectly analogous 
to what it is in the other, it may be more convenient to consi- 
der a subject in the first place, sometimes wuth a bearing on 
the individual, and sometimes with a bearing on the govern- 
ment. 

I may observe that the order in which the subjects of the 
present book are to be treated is of comparatively little 
moment. The principles to be applied to them have now 
been fully explained ; and, although more or loss intimately 
related, they admit of being discussed without any immediate 
reference to one another. 

A beginning will be made by considering, or I should rather 
say, reconsidering the case of the different dispositions which 
may take place of a person's income. 

It will be recollected that there are only two ways in which 
he can dispose of ii. He may either appropriate it to his 
immediate, or to his future gratification ; that is, he may 
consume it unproductivcly, or save and employ it as capital. 
The question now presents itself: — How much of income 



POLITICAL ECONOMY. 301 

is it desirable should, on the average, be thus saved? To 
prepare ourselves for giving any thing like an approximate 
answer to this question, if even such an answer to it be 
possible, we ought to bear in mind the effect previously 
deduced of the accumulation of savings, or, in other words, 
of the increase of capital, as contrasted with the effect of 
every unproductive expenditure, on the progress of population 
and wealth; to wit, to cause them to increase in the same 
proportion. Many political economists, in their attempts to find 
an answer to the proposed question, have looked at the effect 
just stated alone, disregarding every other circumstance. 
They have thus persuaded themselves that the man who 
saved a considerable portion of his income deserved to be 
ranked in the class of public benefactors; while he who 
spent, on the contrary, the whole, or the greater portion of 
his income, ought to be looked upon somewhat in the light 
of one who, by wantonly destroying a public edifice, or any 
other product of the labour and capital of the community, 
was directly instrumental in retarding the progress of national 

wealth. 

And in all this they would not have been far wrong, if for 
a nation to advance in wealth and population were synony- 
mous with its augmenting in prosperity or happiness. But 
such is by no means a matter of course. An increase of 
numbers, even when accompanied by a corresponding increase 
of national wealth, can scarcely be desired, should it at the 
same time imply a deteriorating of the general condition of a 
people. This will, in fact, be the case when the increase of 
wealth has resulted from an excessive degree of saving. For 
then the slyle of living among those classes of the community 
who can best afford, and who are therefore expected, to 
expend the most for the consumption of themselves and fami- 
lies, will be lowered ; and with it that standard of enjoyment 
must also be lowered, to attain which will be the constant 
aim of the poorer classes. They will in consequence, on the 

39 



302 THE PRINCIPLES 0» 

principles established in my second book, accustom themselves 
gradually to a diminished command over the necessaries and 
luxuries of life. 

But it may be said that, in the part of the present treatise 
now referred to, the acquisition by the poorer classes of 
habits of saving has been as earnestly inculcated upon them 
as the acquisition of a more extended desire for necessaries 
and luxuries. Would not, then, the example of the wealthy 
when they save, be quite as beneficial to the poor as when they 
expend, their incomes? It seems to me that it would not be; 
because the amount which is, in the actual condition of things, 
saved by the poor, bears no comparison with the amount 
expended by them ; and because, under the most favourable 
circumstances, their savings cannot be expected to be other- 
wise than inconsiderable. 

Experience informs us, however, that a large expenditure 
by the rich, upon their own unproductive consumption, is by 
no means always contemporary with an elevated rate of living, 
or what is very nearly the same thing, with the receipt of a 
high rate of wages, by the labourers generally. So far from 
it, that we find, not unfrequently, the great body of a people 
to be most degraded where a class possessed of overgrown 
wealth exist in the midst of them, spending their means pro- 
fusely on all manner of extravagances and luxuries. I am 
disposed to think, that any example, in respect to expenditure, 
which may be set to the poorer classes of the community by 
those whom Providence has placed in easier circumstances, 
will be calculated to have little or no beneficial effect, unless 
the latter class of persons be not a great deal more wealthy 
than the former, and be moreover sufficiently numerous to be 
found in every neighbourhood. And, perhaps, it would not be 
incorrect to attribute even an injurious influence to great 
wealth, expended in the manner above described ; since, by 
the total improbability of competing with it on the part 
of the great body of the people, it will have a tendency to 



POLincAXi Eooiroair. 803 

check, rather than to stimulate, their efforts to better their 
condition. 

On a comparison of what has been said concerning the 
effects of saving a greater or a less portion of the incomes of 
individuals, I think it would be extremely difficult, and I may- 
say impossible, for the political economist to form any defi- 
nite opinion as to how much of his income a man ought to 
spend, and how much of it he ought to save, in reference to the 
public welfare. The conduct of each person must be regu- 
lated, in the matter, by the same prudential considerations 
which determine his course of action in the affairs of every 
day Hfe. 

Having come to the conclusion that every individual of 
society is quite as good a judge of the most expedient mode of 
distributing his income between his productive and his unpro- 
ductive consumption (regard being had as well to the public 
as to his own welfare) as the political economist can be for 
him, — it is almost tautology to add, that he is, in general, 
better fitted to judge for himself, of the most expedient mode 
of distributing his income, than the government, or any 
statesman, can possibly be. In my opinion, all that the govern- 
ment should here undertake to do, is to remove, wherever 
any may exist, every artificial cause of the accumulation of 
large fortunes in particular families ; such as laws of primo- 
geniture, and laws for preventing the alienation of landed 
estates. When this shall have been accomplished, it may 
safely leave things to their natural course ; perfectly satisfied 
that, where man's wisdom is at a stand, an adequate provision 
will have been made by nature, or to speak more accurately, 
by the Author of nature, for the attainment of the greatest 
amount of human happiness, which, under the circumstances, 
is attainable. 



304 THB PHIKCIPLES OF 



CHAPTER II. 

MODE IiV WHICH GOVERNMENTS HAVE INTERFERED WITH THE 

UNPRODUCTIVE EXPENDITURE OF INDIVIDUALS MISTAKEN 

NOTIONS BV WHICH THE ACTION OF GOVERNMENTS HAVE BEEIf 

SOMETIMES INFLUENCED APPLICATION OF THE PRINCIPLES OF 

POLITICAL ECONOMY TO THE " TEMPERANCE QUESTION ;" AND 
TO THE BESTOWING OF MONEY FOR RELIGIOUS AND PHILANTHRO- 
PIC PURPOSES. 

For the government of a country directly to interfere with 
the natural distribution of the wealth produced, by dictating 
to the individuals under its control how much they are to 
expend productively, and how much unproductively, would 
have been altogether too obvious an infringement of the rights 
of property, to be ventured upon with impunity, in an improved 
state of society. The same thing in eflcct has been, however, 
attempted in more ways than one indirectly. 

Sumptuary laics have, for instance, been enacted, for the 
purpose of checking the advances of luxury. To consume 
certain articles, has been pronounced by legislative authority 
to have a tendency to corrupt or enervate the character of a 
people ; and their consumption has, accordingly, been either 
entirely prohibited, or rendered expensive by taxing them 
more or less heavily. Even though the proceeds of this taxa- 
tion were needed for supplying the necessary expenditure of 
the government, and were, for this reason, a transfer of the 
unproductive consumption of individuals, to become the pro- 
ductive consumption of the government, the measures adopted 
would not be therefore rendered proper. The public treasury 
could be supplied, to the requisite amount, without disturbing 
the natural distribution of labour and capital, and without 



POLITICAL ECONOMl. 305 

the inequality and injustice of taxing one class of the con- 
sumers only. 

I may here observe that governments have not been always 
50 enlightened in their views, concerning the wealth of 
nations, as is implied by the taxation of unproductive in 
preference to productive consumption. They have sometimes 
proclaimed, as a principle of action, the doctrine that it was 
a matter of no moment whatever how the incomes of indivi- 
duals, and their own incomes too, were spent ; but that w'hat 
was really important was, that those incomes should indeed be 
spent, and not saved. The public expenditure was seriously 
maintained to be so much of the people's property, which, 
after having been taken from them, was again returned to 
them, undiminished in amount by its being for a time out of 
their possession. And the practice of the governments alluded 
to was, very naturally, not seldom in entire conformity with 
this theory. Taxation was occasionally pushed by them to 
the limits of endurance, — limits removed to a remoter distance 
by the military force which was kept in readiness to suppress 
the incipient efforts of popular insurrection. 

In the mean time, however, political science has been 
advancing, and has found its way, to a certain extent, from 
the writings of the philosopher into the cabinet of the states- 
man. Governments now a days, accordingly, do not put 
forth opinions so utterly absurd and ruinous, as those I have 
been animadverting upon. There are very few persons, too, 
who now venture, in the intercourse of society, to express any 
such opinions in relation to the action of government ; 
although, it is true, we still frequently hear them maintained 
in reference to the action of individuals. Most of my readers 
will probably remember, more particularly, having at some 
time or other heard the remark adduced, in palliation, if not 
in justification, of an apparent extravagance of individual 
expenditure, that the money expended ivas thus made to circu- 
late, and for this reason, to benefit the community ; while, in 



306 THB PRINCIPLES OF 

Other respects, no disadvantage was incurred by them, because 
•what was one man's loss, in consequence of the expenditure in 
question, was another's gain. 

The student of poHtical economy, who has read and under- 
stood the preceding part of the present treatise, I hope will 
need no farther aid from me in this place, to enable him at 
once to refute the crrours above mentioned ; and I shall, there- 
fore, without delay proceed to another topic. 

There arc some articles, to consume which, or to consume 
which to the extent in which they arc actually consumed, has 
an injurious effect upon society. Hence, a sentence of con- 
demnation, either wholly or partially, as the case may be, has 
been passed upon them by the moralist. And the philanthro- 
phist and the christian have latterly exerted themselves in the 
instance of unquestionably the most injurious of these, viz. 
spirituous liquors, to diminish their consumption as much as is 
practicable. Success of no ordinary magnitude has already 
rewarded those exertions. A still greater degree of it, also, 
may be eventually expected. The question now occurs : — 
Can the political economist add any arguments of his own to 
those which present themselves to the mind of every reflecting 
man, and which have been repeatedly and impressively urged 
upon the community to enlist them in the cause of temperance 1 
Or, in other words, can he contribute any thing to render the 
victory over ijitemperance more speedy, and more decisive ? 
This is an important question ; and the answer to it deserves 
to be well considered. 

Here, as in a case previously before us, I hold that the 
moralist can derive no additional light from the science of 
political economy, to exhibit more clearly the evils of intem- 
perance, as well as the tendency of the use in any degree of 
spirituous liquors to become an abuse of the worst possible 
description, than any unprejudiced man of good sense is capa- 
ble of doing. The arguments against their use which have 
been advanced on the ground ofthe extraordinary expenditure 



POLITICAL ECONOMT. 307 

incurred, and consequently of the extraordinary amount of 
the labour and capital employed, in procuring them, — which 
labour and capital might far better have been employed to 
procure the means of promoting, in various ways, the cause 
of religion, of morals, or of education, — are applicable, to a 
greater or less extent, to shew the propriety of the reduction, 
on the part of most of the members of a community, of their 
unproductive consumption generally. Without doubt, if a 
man would consent to appropriate the value of the spirituous 
liquors he is in the habit of consuming to philanthrophic pur- 
poses, he would be doing a very laudable act. But the same 
thing may be said of him who, for a like purpose, foregoes 
the personal gratification derived from any other portion of 
his unproductive expenditure, — from what, for example, is 
expended by him on tobacco, — in entertaining his friends, — 
or even on his own food and clothing. Politico-economically 
speaking, all these, being objects of men's desire, are to be 
regarded as useful objects ; and their utility to any individual, 
in the circumstances in which he is actually placed, must be 
estimated by the labour, or the products of labour, which he 
is willing to give in exchange for them, rather than be without 
them. And the argument against the use of spirituous liquors, 
in so far as it applies with greater force to those liquors than 
to any other article of consumption, is ahogether a moral 
one, and is, besides, not in any degree on this account the 
weaker. 

Now and then we hear of di grocer becoming a convert to 
the " temperance cause," and not only coming under an 
obhgation to abstain altogether from consuming spirituous 
liquors, but Hkewise, from a sense of duty, pouring out upon 
the ground the stock of that article which he may happen to 
have in his possession, in order to prevent its consumption by 
any one else. By acting thus, he gives the strongest evidence 
the case admits of the sincerity of his conversion, as well 
as produces the greatest possible moral impression on the 



308 THE PRINCIPIiES OF 

minds of other men. To produce this impression is plainly a 
very important object, and it may be highly desirable that 
instances of the kind described should occasionally, or even 
frequently, occur. Nay, I may go so far as to say that it may 
be dinicult to conceive how a dealer in spirituous liquors, 
professing to be a sudden convert to the sin of consuming 
them, could be sincere and yet act otherwise. Nevertheless, 
it is proper that the politico-economical effect produced in the 
case should be rightly understood, although to understand it 
rightly might scc/n to weaken the motive for well-doing ; and 
this on the incontrovertible principle that whatever apparent 
inconveniences may be connected with the substitution of truth 
for errour, the ultimate consequences to ensue must of neces- 
sity be salutary. The effect adverted to is very easily to be 
traced. When the stock of spirituous liquors in any market 
is diminished, their price must rise, and they will be produced 
in greater quantity, until the supply is once more accommo- 
dated to the demand. But to suppose the spirituous liquors 
destroyed to be in any degree replaced by an increased pro- 
duction of the same article, is manifestly equivalent to sup- 
posing that the production of other commodities generally 
will take place to a less extent than before. It follows, 
therefore, that every constituent element of the national wealth 
will be proportionally diminished. And so long as the desires 
of men continue unchanged, any attempt to lessen the con- 
sumption of spirituous liquors, by destroying a portion of the 
existing stock of them, will have the desired effect in no 
greater degree than the destruction of an equal value in 
houses, furniture, clothing, or any other description of property 
would have; for the above reasoning is general, and not 
applicable to spirituous liquors alone. Let the reader apply 
it to the case say of a theatre, or of a church, and he will 
satisfy himself of the correctness of what I say. 

In this age of extended christian and philanthrophic effort, 
considerable sums of money are, from time to time, collected 



POLITICAL ECONOMY. 309 

and disposed of, with the direct object in view of meliorating 
the moral or physical condition of our fellow-men. Such an 
expenditure as this has been objected to by some, who have 
supposed themselves to be arguing on the principles of the 
political economist, when they maintain it to be so much 
taken from the sum of the national wealth and expended 
without any return. Their errour is a two-fold one. They 
do not perceive, in the first place, that their argument is 
appHcable to every instance of expenditure for the purpose of 
ministering to the unproductive consumption of individuals ; 
and that they might, therefore, quite as well object to a man's 
wearing two coats or two hats, where he could get along 
with only one, as object to a partial appropriation of a man's 
income for benevolent purposes, — even though it were in this 
case to be consumed unproductively. But secondly, what is 
thus appropriated is not, by any means, consumed unproduc- 
tively ; since, in consequence of its consumption, much wealth, 
— sometimes material, and sometimes immaterial, — is pro- 
duced. The reader will recollect the sense in which the terms 
employed here have been defined. 

More than once I have heard the fact of a liberal donation 
for some religious object, by some poor widow, or other person 
in comparatively narrow pecuniary circumstances, stated in 
a manner to imply that the party was guilty of an absurdity, 
if not of a crime, in what had been done. It was assumed as 
a manifest truth that it would be much better for all such 
persons to devote their means to the present or future support 
of themselves and families ; and to leave the field of christian 
benevolence to be occupied exclusively by the more wealthy 
portion of the religious community. So far from this opinion 
being sanctioned by the conclusions of political economy, any 
more than they are by the precepts of the gospel, I cannot 
but look, consistently with those conclusions as deduced in 
the preceding part of this work, upon a state of things in which 
considerable sums are contributed voluntarily by the poorer 

40 



310 THE rniNciPLBs or 

classes for religious and other philanthropic pur}:)oses, as 
indicative of their iiaving attained to a considerable elevation 
of character, and therefore to a more than ordinary com- 
mand over the necessaries and luxuries of life. Shew me 
a people who estimate highly the advantages of religion, of 
morals, and of education, and, as I have in substance more 
than once observed, I will shew you a people among whom 
wages are high. 

Where the money which has been collected, and of which 
I am speaking, is sent out of the country, as in the case of the 
sums appropriated to the support of foreign missions for the 
propagation of Christianity, the parties referred to have been 
particularly loud in their objections, — from the circumstance 
of the money expended having the appearance more unequi- 
vocally of being without a return. Looking at the moral 
effects on the minds of the donors, as well as at those which 
may be ultimately anticipated to take place in every country 
from the more general diffusion of the blessings of our religion, 
we may confidently deny that the money expended is expended 
without a return. But though this were in reality the case, 
the loss to the country would be neither more nor less than 
what results from every unproductive expenditure of equal 
value ; and, to be consistent with themselves, the objectors 
ought therefore to declare war against every unproductive 
expenditure, excepting only what is required for procuring 
the necessary means to sustain our bodily existence. And 
after what has been delivered on the subject of money, I need 
not surely here waste a moment of my readers' time in again 
proving to them that to send money abroad, rather than com- 
modities of a different description, is a matter of not the least 
consequence in its bearing on the progress of national wealth. 



POLITICAL ECONOMY. 311 



CHAPTER in. 

OUGHT A PREFERENCE TO BE GIVEN TO ONE BRANCH OP INDUSTRY 
OVER ANOTHER, BECAUSE OF THE GREATER NUMBER OF LABOUR- 
ERS EMPLOYED BY A GIVEN AMOUNT OF CAPITAL ? WHETHER 

ROADS AND CANALS SHOULD BE CONSTRUCTED BY GOVERNMENTS, 
OR BY INDIVIDUALS ? 

The rates of profits and of wages, when left to regulate 
themselves, will tend to become equalised in all the various 
branches of industry. Political economists are, for this reason, 
agreed in regarding all of these as equally advantageous to a 
country. But is not the circumstance of one branch of 
industry having a larger proportion than another of fixed, 
when compared to circulating capital, a suflicient reason for 
making a distinction between them, in reference to the public 
welfare, — because the number of labourers to whom em- 
ployment is afforded by a given capital is always de- 
termined in a greater degree by the circulating portion of 
it? And ought not the government to disturb the natural 
distribution of capital, by causing a greater amount of it to be 
invested in the employments where the circulating portion of 
it predominates over the fixed portion ? I remark in reply, 
that, if no savings were ever made from the wages of labour, 
the interests of the capitalists need alone be regarded in deter- 
mining the most advantageous distribution of capital ; and I 
need not here repeat the reasons why the natural distribution 
of it is that which is best fitted to promote those interests, by 
establishing the highest possible rate of profit. A very small 
difference in this rate, in favour of the capitalist, will, on the 
supposition now made, give rise to a more rapid accumulation 
of capital, and therefore a more rapid increase of wealth and 



312 THB PRINCIPLES OF 

population than would otherwise take place ; and will deter- 
mine, at a period more or less distant, the existence in any- 
country of a greater number of inhabitants than would then 
exist were the natural order of things to be disturbed in the 
manner suggested. 

Savings are, however, in fact made by the labourers ; espe- 
cially by those labourers who receive a high rate of wages. 
Now even taking this circumstance into consideration, I hold 
to the expediency of not interfering with the natural course of 
things, for the following reasons. First, fixed and circulating, 
as applied to capital, are merely relative terms, and the degree 
of fixedness is so very various as to render any equitable 
interference, of the kind now under consideration, with the 
different branches of industry, extremely difficult on the part 
of the government, — and it is evident that it is the government 
only that can interfere in the matter to any effectual purpose. 
Secojidly, any interference by the government in the present 
instance necessarily implies a very inquisitorial and annoying 
system of intermeddling with the concerns of individuals. 
Thirdly, the government could not interfere in favour of 
employments in which the capital invested is chiefly circulat- 
ing, without setting itself in opposition to the progress of 
human invention, and endeavouring to check the progress of 
improvement in the arts ; a policy on which no government 
has hitherto acted, and which no one will be found to justify, 
however hostile he may be to the principles of free trade. I 
have said that the adoption of such a course by the govern- 
ment of a country is for it to endeavour to check the progress 
of improvement, because that progress is always accompanied 
by the substitution of fixed for circulating capital. Indeed if 
this were otherwise, man's labour could not become more and 
more productive, and there would be no room for improvements 
to take place. And lastly, according as fixed is substituted 
for circulating capital, the processes of production will 
become continually more and more complicated, and the 



POLITICAL KCONOMY. 313 

number of labourers who receive a comparatively higher rate 
of wages will, in consequence, be augmented ; and as the 
savings which are made from wages are in a far greater 
degree made from the waares of those labourers who receive 
the higher than from the wages of those who receive the 
lower rates, this circumstance alone may be regarded as suffi- 
cient to counterbalance the disadvantage of fixed capital giving 
employment to a less number of labourers. 

Of all the branches of ?n«ienaZ industry there is none which 
has been regarded as calling, in so great a degree, for the 
interference of the government, as that of constructing the 
means of communication, and of transportation, from one 
district or region of a country to another. That any private 
individual should be empowered to make a road or canal, at 
his pleasure, through his neighbour's property, even though he 
should pay him the full value of the ground taken from him for 
the purpose, has been every where put out of the question as 
a moral absurdity. And the public, as well as the political 
economists, are divided in opinion into two classes, as to the 
most expedient instrumentality by means of which roads and 
canals should be constructed ; the one class maintaining the 
expediency of their being constructed by agents appointed by 
the government, and directly accountable to it, and the other 
the expediency of their being constructed by individuals or 
companies of individuals, simply acting under its authority, — 
the net proceeds of the tolls exacted going in the former case 
into the public treasury, and in the latter into the coffers of 
the individuals or companies concerned. 

It has been maintained, on the one hand, that there can be 
no better criterion of the expediency of constructing a new 
road, between two different points of a country, than the 
willingness of individuals to invest their capital in its construc- 
tion, on the condition of the finished road becoming their 
exclusive property ; of which criterion the country will be 
deprived by the government undertaking to be thci sole or the 



314 TDE I'RINCIPLES OF 

principal constructor and proprietor of its roads. Tlie chief 
argument, liowever, against the direct interference of the 
government in the business of road-making, is the greater 
costhness of whatever is produced by it through the instrumen- 
tahty of its agents, when compared with the cost of produc- 
tion where the agents employed are either themselves 
personally interested, or are closely superintended by those 
who arc per.sonally interested, in the work to be performed 
being accomplished in the most economical manner. 

Those who prefer the immediate action of the government 
in the case object strongly, on the other hand, to the creation 
of large incorporations, for road-making as for any other 
purpose, at least where the necessity of their existence cannot 
be distinctly exhibited ; and this objection they are especially 
urgent in pressing when, as not unfrequently happens, it is 
proposed to confer on the company incorporated the monopoly, 
for a long term of years, of conveying passengers and goods 
from one place to another. Such a monopoly, it is true, is 
seldom or never formally conferred. But it may, in eflect, 
result from an obligation which the legislature may choose to 
impose upon itself, not to permit the construction of any 
similar line of communication between the extremities, or 
within a certain distance, of^the one the construction of which 
it may at the time authorise ; or the parties, in whose behalf 
the legislature has been pleased to act, may have the exclusive 
privilege granted to them of conveying passengers or goods 
along their route in a particular manner, — this manner being 
the most expeditious and most desirable manner. Even, 
however, should the company incorporated possess no privi- 
leges of the kind just mentioned, it will possess the power, in 
an extraordinary degree, which is incident to the appUcation 
of a large capital directed by a single individual, or combina- 
tion of individuals, to any e;nployment, of whatever nature it 
may be. It will find it practicable to prevent the competition, 
to a certain extent, of all other parties who, in the natural 



POLITICAL ECONOMY. 315 

course of things, might be disposed to compete with it, by the 
circumstance of its being in possession of the field of action. 
Another road will not be constructed along side of an existing 
one, unless there be a fair prospect of deriving from it the 
ordinary rate of profits ; and this cannot happen unless the 
new road be a considerable improvement on the other, or the 
profits received by the proprietors of the other considerably 
exceed the ordinary rate. If at any time, too, the opinion 
should become prevalent that the proprietors of a road are 
making extraordinary profits on the capital invested by them 
in its construction, and other capitalists should, in consequence, 
begin to discuss the project of a new road, the former could 
often postpone, or even prevent altogether, the execution of 
it, by temporarily lowering the rate of toll exacted by them 
from the passenger or the merchant. 

Again, apart from the objection I have been considering, 
founded upon the inequality of the privileges enjoyed by the 
different classes of capitalists, it is argued that, if a road or 
canal is to be a profitable speculation, it is proper that the 
people in general should have the benefit of it, through the 
government, which is their agent acting in their behalf, in 
order to he relieved to a certain extent from taxation ; while, 
on the contrary, if the speculation is to be an unprofitable 
one, neither the government nor any other party should 
embark in it. In other words, if the work referred to is worth 
doing at all, it ought to be performed by the government. 

Perhaps the proper conclusion, on comparing both sides of 
the question under consideration, as they have just been 
stated, is for all roads and canals to be constructed by indivi- 
duals or companies of individuals, acting under a legislative 
authority, — on condition of their being permitted to enjoy, /or 
a term of years only, all the profits resulting from the tolls to 
be exacted, these tolls being at the same time forbidden by the 
law to exceed a certain rate. There is room for the exercise 
of much judgment in determining the length of this term of 



316 TUB PRINCIPLES OF 

years, as well as in fixing the rate of toll which is not to be 
exceeded. Every effort should be made so to adjust these as, 
on the one hand, not to raise up any undue obstacle to the 
progress of improvement, and, on the other, to secure to the 
country the beneiit of an interested agency in the superin- 
tendence of that progress, without making too great a sacrifice 
to the grasping spirit of monopoly. At the expiration of the 
period during which the parties of whom I have been speak- 
ing are permitted by the law to enjoy the property of the 
works constructed by them, these may become the property 
of the public at a price equivalent to their original cost, or 
at any other stipulated price. 

In what has just been stated the necessity is implied for 
lesrislation in reference to the construction of roads. All laws 
on the subject should, however, be as general as possible, in 
order to secure the greatest degree of impartiality towards 
every individual and every district of a country, both as to the 
benefit rendered, and the damage to property which cannot 
fail to be to a certain extent incurred. Provision, it seems to 
me, might be made by a single law for every case that may 
present itself. A tribunal, for example, might be constituted, 
or rather the mode pointed out of constituting a tribunal, to 
decide on the roads or canals proposed to be constructed, and 
to decide concerning their expediency or inexpediency, upon 
principles established by the legislature ; principles having for 
their object to determine how far the public good, viewed on 
the most extensive scale, justifies an interference with private 
property without the consent of the owner being first obtained, 
as well as to protect the holders of real estate from having a 
road at any time cut through their property by persons 
who are actuated by motives of hostility to them, or by other 
improper motives. 



POLITICAL ECONOMr. 317 

CHAPTER IV. 

ENCOURAGEMENT OF INTELLECTUAL PRODUCTS. 

We come now to a class of producers who are very gene- 
rally acknowledged to have peculiar claims to encouragement, 
as well from the more enlightened portion of the community, 
as from the government. I mean that class whose products are 
of an intellectual or immaterial character. 

The grounds of a distinction here are, first, that while 
almost every individual may be looked upon as estimating, 
with sufficient accuracy, the relative advantages which the 
different descriptions of material wealth are capable of 
affording him, such is far from being the fact in respect to 
intellectual products. No recondite knowledge of human 
nature is requisite to satisfy any reflecting mind that, without 
the species of encouragement now adverted to, the great 
body of the people, even in countries where civilisation exists 
in the highest degree to which it has yet attained, would 
advance very slowly, if at all, in the career of improvement. 
Indeed, to me it is apparent that, but for the efforts which 
have been made, and which will continue to be made, by the 
more enlightened portion of society, to diffuse the blessings of 
education, of morals, and of religion, as extensively as possible 
among their fellow-men, and made irrespective too of any 
previously existing demand among the latter for those bless- 
ings, mankind would degenerate into a state of hopeless 
barbarism. 

The second ground of distinction in the present case, in 
favour of the intellectual products which have been men- 
tioned, is, that every individual of a nation, or of the great 
community of mankind, is interested in their being diffused, 
and, to speak technically, consumed, to the greatest practi- 

41 



318 THB PRINCIPLES OF 

cable extent. In a country like our own especially, where 
the right of suffrage is enjoyed by almost every adult male 
citizen, and is exercised at comparatively short intervals, 
where too, in consequence, the government is under the direct 
control of the people, the importance of their being an 
educated, a moral, and a religious people, cannot be too 
strongly felt, and acted upon. 

1 have before stated that what it was the duty of an indi- 
vidual to do in reference to the national welfare, it was, 
generally speaking, the duty of the government of a country 
likewise to do. An exception to this is presented to us in the 
case of religion ; at least in the opinion of every American. 
We are unanimous in thinking that the cause of religion is 
injured, instead of benefited, by an alliance with men in 
power, and that an entire equality of civil privileges on the 
part of the different religious sects is better adapted than any 
other condition of things to turn them from vain speculations, 
and fruitless controversies with each other, to the exercise of 
a practical piety. To give the reasons for this our opinion, 
would hardly be in place in a treatise of political economy ; 
and it is the less necessary here, because, if the opinion were 
a wrong one, the general doctrine which I am now main- 
taining would not be thereby in the slightest degree invali- 
dated. 

How far it would be expedient for the government of a 
country to adopt measures with a view to the promotion of 
the public morals, is a question of some complexity, and one 
which has some connexion with that concerning the inter- 
ference of the government with the religion of the people. 
I shall leave my readers to decide it for themselves ; and it is 
not improbable that their decision of it will be very various 
in its application to the different cases of public morals as they 
occur. 

To the propriety of a legislative appropriation of the public 
money to the support of common schools, in which every 



POLITICAL ECONOMY. 319 

child in the community may have an opportunity of acquiring 
the elements of an education, and be prepared by it to become 
a useful citizen when he shall have arrived at manhood, very 
few educated men will be any where found to object. Some 
people, however, have a notion that the public money granted 
for purposes of education should be appropriated exclusively 
for the support of common schools. Academies of a higher 
order, colleges, and universities, they say are places of 
education for the sons of the rich, and ought to be left to be sup- 
ported by the rich. Fortunately, however, the interests of the 
rich and of the poor are not by any means so often in opposition 
to each other as many persons are apt to suppose ; and they 
are certainly not in opposition to each other in the instances 
just mentioned. While the common schools are, on the one 
hand, open to the rich and poor aUke ; the colleges and univer- 
sities, on the other, are institutions where, in consequence of 
the endowments bestowed upon them, by wealthy individuals 
or by the state, the children of persons in moderate pecuniary 
circumstances, as well as of the rich, can receive an educa- 
tion of a higher order. If the children of persons in still more 
moderate circumstances are practically excluded from the 
benefits of a college or university education^ all that needs to 
be said is that the remedy for the evil is to be found, not in 
exciting the prejudices of the " democracy" of the country 
against all seminaries of a higher order, by promulgating the 
doctrine which I am occupied in refuting, but in maintaining 
the expediency of a still larger appropriation of the pubUc 
resources to such seminaries, in order to enable them to 
educate their pupils at a comparatively small expense, or even 
to educate a number of them gratuitously, who may be 
selected for their capacity and merit from among the children 
in the common schools, or on any other principle that may be 
preferred. 

But the poorer classes, besides being interested in the legis- 
lative bounty bestowed on universities and colleges, as opening 



320 THB FRINC1FLE3 OF 

to their children in a certain degree the doors of those insti- 
tutions, receive benefit from them, when fostered by the state, 
in a difTerent mode. Other circumstances being the same, the 
people generally will be benefited by the existence in a country 
of a greater number of highly educated men, than would exist 
in it were education of the higher order to be left to be taken 
care of by the wealthier portion of the community merely. A 
taste for knowledge will then be more surely, as well as more 
rapidly, diffused through the successive gradations of society, 
down to the most ignorant ; and the consequence cannot fail 
to be to elevate the character of the labourer, and thereby to 
augment his command over the necessaries and luxuries of 
life. This last effect, moreover, will result from the influence 
of an augmented degree of knowledge in accelerating the 
progress of improvement in the various arts. 

Encouragements administered in general to science or litera- 
ture, and to the fine arts, are evidently to be regarded as 
proper, for the same reasons precisely as those which have 
been adduced to evince the propriety of the legislative encou- 
ragement of the higher seminaries of learning. 

The useful arts, — improperly so called, because the fine arts 
are equally useful with them, — have been assumed above to 
be worthy of especial encouragement. The reason why, the 
reader can supply for himself. 

All regulations which have a tendency to prevent persons, 
not properly qualified, from belonging to any of the learned 
professions, or from engaging in any other employment, are 
justifiable, in so far as they are justifiable,, on the principles 
on which the interference of individuals, or of governments, has 
been justified in the cases already considered in the present 
chapter, — the principles that can alone justify the interfering 
in any case whatever with the liberty of our fellow-men to 
act according to their pleasure, — to wit, that it is the duty of 
the lawgiver to protect society from the injurious action of any 
of its members, and likewise to promote the general welfare 



POLITICAL ECOXOMY. 



321 



as far as lies in its power. The regulations in question pro- 
ceed on the supposition that, a considerable portion of the 
community are not sufficiently well informed to be able to 
form a proper judgment concerning the qualifications of the 
professional man, or other labourer, for whose services he 
may be disposed to apply. Under these circumstances, the 
government, or persons deriving authority for the purpose 
from the government, undertake to judge for them. It 
is evident that the expediency of all measures of the kind 
will be lessened, according as knowledge is more generally 
diffused ; and that first one, and then another of them, can be 
removed or repealed with advantage to the public. 

There is another class of interferences with man's liberty 
of action, respecting which little needs here be said. I refer 
to the subjecting of certain articles of merchandise, before 
they are permitted to be sold, to the inspection of officers 
appointed for the purpose of testing their quality ; and to the 
prohibition, often existing, of buying or selling certain articles, 
excepting at particular times and places. Such interferences 
as these are often exceedingly annoying to both buyer and 
seller, and unaccompanied by any compensating advantages. 
They are, indeed, at times so very absurd as to serve no other 
purpose than to furnish the occasion of creating a number of 
offices, to be filled by partisans or creatures of the administra- 
tion of the government for the time being. 



322 TUB FBINCIFLBS OF 



CHAPTER V. 

EFFECTS OP A DIVISION OF THE PROPERTY OF THE RICH AMOWQ 
THE POOR ; AND OF INTERFERENCES IN GENERAL WITH THE 
PROPERTY OF THE RICH FOR THE BENEFIT OF THE POOR 

OP trades' unions. 

Having, in the preceding chapter, touched upon one of the 
cases in which the interests of the rich and the poor have 
been, ahhough wrongfully, supposed to clash, it will be in 
order for me to proceed with the discussion of the various 
modes of improving the condition of the latter of these classes 
at the expense of the former. The converse of this, how the 
rich may profit at the expense of the poor, I shall not be 
expected to treat as a separate question. At any rate, after 
the argument in behalf of the poor shall have been exhibited 
and animadverted upon, the reader will be able to supply for 
himself, if he chooses, that in behalf of the rich. 

Let us begin with the case in which, of all others, the poor 
would be apparently most benefited. Let an equal division 
be made of the national wealth. What will be the conse- 
quences to ensue ? 

In the^rs^ place, a blow will have been struck at the rights 
of property. What has once occurred may occur again. In 
the hope, and even expectation, of its doingso, the industrious 
will relax his industry, and the indolent will become more 
indolent still. Production will therefore be lessened. A 
greater proportion, too, of what is in fact produced will be 
consumed unproductively ; for when a man's savings may be 
taken from him, the motive for saving any part of his income 
cannot be as great as it would be under a system of entire 
security to property ; and capital will, of course, not be in 



POLITICAt ECONOMY. 323 

reality accumulated as rapidly as before. To say, however, 
only this, is doing injustice to the importance of ever preserv- 
ing the rights of property inviolate. The more my readers 
will ponder upon the effects which must necessarily result 
from every violation of those rights by the hand of power, 
whether that power reside in a monarch or a mob, the more 
extensive and disastrous, in my opinion, will the effects 
described appear to them to be. Now if the accumula- 
tion of capital proceed at a much diminished rate, two con- 
sequences, on the principles previously established in the 
present work, must ensue ; the population of the country will 
not by any means increase as fast as it did ; and the wages 
of labour will be considerably lowered. Again, a community, 
where such a measure could by possibility be adopted as 
that whose effects are now the subject of examination, must 
be an immoral, irreligious, and degraded community ; one 
consequently, also on the principles previously explained, 
w^hich, whatever temporary advantages it may succeed in 
obtaining by dishonest means, will unavoidably have its com- 
mand over the necessaries and luxuries of life ultimately 
reduced to a comparatively small range of enjoyment. 

But this, although sufficient, and more than sufficient for 
our purpose, is not all. For secondly, where all the members 
of a community are comparatively poor, as they would be 
notwithstanding the division among them of the property of 
the rich, it would be much more difficult than at present to 
bring together, and wield efficiently, a large amount of capital. 
The divisions of labour could not, in consequence, take place 
to the extent required by the existing state of the arts ; and 
production would, on this account, take place more rudely, 
and less abundantly. 

Thirdly, on the supposition which has been made, of the 
division of the property of the rich among the poor, every 
hian would be, nevertheless, so poor that he would have to be 
engaged in some bodily or manual occupation ; the few 



324 THE PRINCIPLES OF 

instances only excepted where extraordinary natural or 
acquired capabilities qualified their possessor, in the opinion 
of his fellow-citizens, for the superintendence or management 
of combined capital. The great body of the people would, 
it is obvious, be placed in the most unpropitious circumstances 
for the development of the powers of human invention. So 
far, it seems to me, from improvements of any moment being 
then introduced in the arts, thus augmenting the productive 
powers of man, the arts would gradually deteriorate, and 
many of them, as happened in earlier times, would eventually 
pass away and be forgotten. 

And lastly, even though the progress of improvement and 
and the accumulation of capital were to go on as before, the 
command of the several members of the community over the 
necessaries and luxuries of life would gradually become con- 
tracted. The desires and habits of the people remaining the 
same, the possession by them of larger means of expenditure 
would have the effect of giving a corresponding stimulus to 
population ; and eventually, the population would be aug- 
mented, at the very time when, on account of the diminishing 
returns from the land, the rate of production would be dimi- 
nished, so as to reduce the whole community to a state of 
poverty. But because the temporary enjoyment of a greater 
amount of necessaries and luxuries, than the mass of the 
community had been previously accustomed to, would have a 
tendency to improve their habits, and enlarge their desires for 
enjoyment, some modification, it is true, may be proper of the 
conclusion just arrived at. Not, however, to any great 
extent ; as the reader cannot fail to perceive on a moment's 
reflection. 

Now putting together all the considerations which have 
been stated, to exhibit the inexpediency of a division of the 
property of the rich among the poor, it is impossible not to 
conclude that, while the temporary advantages, to be derived 
by the latter from so violent and so dishonest a measure, 



POLITICAL ECONOM\. 325 

would be much less in amount than might on a superficial 
view be expected, the whole community would before long be 
reduced to a state of almost irretrievable wretchedness and 
barbarism. 

The inexpediency of dictating to an individual how much 
he shall consume of his income on his immediate gratification, 
and how much he shall save or consume productively as 
capital, has been shewn in a foregoing chapter. And every 
other contrivance or scheme which can be imagined for 
taking in any degree from the enjoyments or property of the 
rich without their consent, in order to give to the poorer 
classes of labourers, is liable to precisely the same objections 
as is the proposition to make an equal division of the wealth 
of a nation among all the individuals composing it. If it shall 
be said that, where a little only is taken to be disposed of in 
the manner suggested, the consequent evils will be compara- 
tively small, I would remark that the temporary advantages, 
bestowed upon the mass of the community, will likewise be 
proportionally diminished ; and the argument above presented 
will retain its full force. 

At the present period, in our own country as well as else- 
where, there is no expedient oftener tried to effect a rise of 
wages than combinations among the labourers engaged in a 
particular occupation, or among the labourers engaged in 
more occupations than one, to compel their employers to pay 
them at a higher rate by means of a strike, that is of a refusal 
on their part to work until their desires are complied with. 
These trades^ unions, besides, seldom stop at this point. Not 
content with a voluntary enlistment of the workmen in their 
number, they attempt to act, and often succeed in acting 
compulse rily upon those who are disinclined to unite with them 
in their measures. While they contribute, in a certain degree, 
to the support of a workman and his family who have nothing 
laid up in store against the emergency of being without 
occupation, they cease to have any intercourse whatever with 

42 



320 THE PRINCIPLES OF 

him, or persecute him in a still harsher manner, if, rather 
than comply with their wishes or commands, he prefers to 
work at the wages which the employers or capitalists are 
willing to pay. 

No one will deny that the existence in a community of all 
combinations of the nature of the trades' unions is an evil, of 
no little magnitude, not only on account of the inconveniences 
to which the capitalists and labourers are subjected on the 
occasion of every strike, but also on account of those experi- 
enced by the consumers of the articles produced, in conse- 
quence of the necessary interruption, resulting from a strike, 
of the ordinary rate of supply. Perhaps a greater evil still is 
their tendency to propagate the notion that, so far from the 
the natural course of things being on the whole, as political 
economists maintain it to be, the most conducive to the inter- 
ests of both rich and poor, a constant struggle of the poor 
against the rich is imperatively required to prevent the former 
from being reduced by the latter to the necessity of content- 
ing themselves with a bare subsistence merely. To justify 
the infliction upon society of the evils which have been men- 
tioned, I need scarcely say that some great good should 
be unequivocally shewn to he likely to result. A per- 
manent rise to a certain extent in the ordinary rates 
of wages would be such a good ; since, as has been 
before stated, the prosperity of a people depends more upon 
the circumstance of wages being high than upon any 
other cause. I shall, however, proceed to shew that no 
permanent augmentation of the ordinary rates of wages can 
possibly be accomplished through the instrumentality of trades' 
unions ; and that all such institutions are productive only of 
unmixed evil. My argument will probably not reach the 
parlies who are more immediately engaged in them, and who 
are the principal sufferers of the evils they inflict ; but I may 
assume it to be not altogether improbable that it may meet 
the eye of some who have hastily given encouragement to 



POLITICAL ECONOMY. 327 

them, supposing themselves, when so doing, to be contributing 
to " the greatest good of the greatest number," and may- 
induce in them a conviction of their having been in errour. 



CHAPTER VI. 

THE SUBJECT OF TRADES* UNIOXS CONTINUED. 

I HAVE said that 1 would proceed to shew that no advan- 
tage can be derived, by the receivers of wages, from the 
trades* unions. But this I have, in fact, already done, when 
treating generally of the effects resulting from a compulsory 
transfer of a portion of the property of the rich to the poor. 
It matters not whether such a transfer be accomplished by 
taking from the rich in one way or in another, excepting only 
that, in as much as there is no dishonest taking where higher 
wages are exacted, the degradation of character ensuing 
cannot be at all as marked as it must be in the case of a more 
palpable violation of the rights of property ; and consequently, 
wages will not be lowered to such an extent as it was before 
shewn they would be. 

The subject is, however, one of so much practical impor- 
tance, at the period and in the country in which we live, 
that it will not be superfluous to state the argument in ques- 
tion in direct reference to the particular case now under 
consideration. 

First, let a certain class of workmen, in some one place, 
succeed in getting their wages raised, by means of combining 
together in the manner which has been described. For 
example, let the class who have thus attained their object be 



328 TUB PRINCIPLES OF 

the journeymen carpenters, and the place where they have 
attained it the city of Philadelphia. It is obvious that this 
state of things can only be of a very temporary duration. 
A motive will now exist for the removal to this city of work- 
men of the kind specified from other, and especially from 
neighbouring places ; and an influx of them into the city -will 
actually occur, with more or less rapidity, according to the 
degree in which wages have risen. The rate of wages here 
will fall, but will rise elsewhere, until the rate in one place 
will again bear to the rate in every other the same proportion 
which it had before ; when wages throughout the country 
will be evidently only someivhat higher than they formerly 
were. 

In the above reasoning, no account has been taken of the 
efforts of a trades' union to prevent any of the trade from 
working at lower wages than what they insist upon receiving. 
Such efforts will not be likely to produce an effect by any 
means as great upon strangers coming from abroad, as upon 
those w^orkmen who have been in the habit of association and 
companionship withthemembersof the union; and according 
to the extent in which the effect is actually produced, will the 
expenditure incurred by the members of the union, in contri- 
buting to the support of every workman who is thrown out of 
employment in consequence of their acts, be augmented, 
and become the sooner an obstacle to the successful prosecu- 
tion of the warfare undertaken by them against their em- 
ployers. 

Now suppose the parties in question to succeed, by help 
of the various modes of annoyance or persecution in their 
power, in excluding all competition with them for work from 
other parts of the country ; or, what amounts to the same 
thing in reference to our present topic, let the journeymen 
carpenters, every where else in the country as well as in 
Philadelphia, strike for higher wages, and thus actually obtain 
them. The series of changes will not yet have been traced to 



POLITICAL ECONOMY. 329 

its ultimate term. The carpenters will, before long, be 
deprived of their advantages, if the other trades do not like- 
wise foUovsr in their footsteps, and strike for wages. So long 
as they are receiving more than the ordinary rate of wages, 
labour will be transferred from other occupations to theirs, 
and the rising generation will prefer their occupation to every 
other. But here again, let the trades' unions of every descrip- 
tion throughout the whole country follow their example, and 
let there be therefore a general rise in the wages of labour. 
Such a rise of wages, the productive power of the country 
remaining unaltered, will imply, as my readers will recollect, 
a corresponding fall of profits ; and as the amount of savings 
made from wages is in general less than from an equal portion 
of profits, and the amount saved besides, when other circum- 
stances are the same, being always greater or less according 
as the rate of profits is greater or less, the conclusion may be 
drawn that the accumulation of capital will be very much 
retarded by the successful operation of the trades' unions. 
And my readers need not be again told that every retardation 
of the rate in which capital accumulates will be accompanied 
by the two effects of a less rapid increase of population, and 
of a diminished rate of wages. Moreover, but for the enjoy- 
ment/or a tune by the labouring classes of a higher rate of 
wages, which will render them less disposed to content them- 
selves with the wages they were before accustomed to, the 
diminution of wages will proceed until they are reduced once 
more to their former rate. The tendency of them, however, 
to be for this reason at a somewhat higher rate than formerly 
would in all probability be more than counteracted by the sum 
total of production, when compared with the augmented 
population, having, from the necessity of applying capita] and 
labour to the land under more disadvantageous circumstances 
than before, become diminished ; a condition of things, it will 
be recollected, implying a rise of rents, and a fall of profits 
and wages. 



330 Tin: 1'RiNciPLES of 

Although too, as I have said, the action of the trades' 
unions can hardly be stigmatized as of a dishonest character, 
since what they propose to take from their employers, in 
addition to the rate of wages which would be determined on 
the princijiles of free competition between the employers and 
the employed, is no doubt regarded by themselves as a remu- 
neration for their labour to which they are justly entitled, — 
such action is, nevertheless, a violation to a certain extent of 
the rights of property. And if these rights may be once 
violated by the trades' unions, they may be again and again 
violated by them ; and the apprehension of this taking place 
would constitute a check to the accumulation of capital with 
its usual rapidity ; inducing, in consequence, a fall of wages 
below the usual rate. 

But here it may be said that, provided the rate of wages 
could be raised by the compulsory action of the trades' unions 
upon both the capitalists and the labourers whom they employ, 
the present generation of men, and especially the members of 
the unions, need not concern themselves with what is to 
happen when they shall have passed from the stage of Hfe. 
The good sense, the patriotism, and the enlarged philanthropy 
of the reader, will, however, I trust, repel the proposition thus 
hypothetically stated. We are all of us bound in duty to act, 
during the period of our abode on this earth, not with refer- 
ence to ourselves and our contemporaries only, but also in a 
certain degree in reference to those who are to come after us. 
But even if this were not the case, the compulsory rise of 
wages in question can be shewn to be productive of Uttle or 
no advantage to the labourer. 

From the very moment a rise of wages takes place, the rate 
of profits will be reduced, and capital will accumulate less 
rapidly, and wages therefore commence falling. 

Again, until the increased demand which the higher pecu- 
niary wages of the labourers enable them to make for certain 
commodities shall, have induced the transfers of capital 



POLITICAL ECONOMY. 331 

requisite for supplying that demand, their real wages cannot 
be much greater than they were before. The same quantity 
of those commodities will liave to be distributed among 
the same number of persons, and distributed among them 
in nearly the same proportion. 

For both the reasons which have just been stated, it will 
happen, on a sudden rise of the wages of the labourers, that 
they will, on the one hand, find it more difficult to get 
employment, and, on the other, be obliged to purchase the 
necessaries and luxuries consumed by them at a higher price ; 
especially the necessaries, for which a more extensive demand 
is made by the classes receiving wages than is made by them 
for luxuries. So that even at first, the advantages derived by 
the labourers from a compulsory rise of their pecuniary 
wages, produced by means of trades' unions, — and the same 
may be said when the rise is produced in any other manner, 
—are far less than they are commonly led to anticipate. 

If now from these advantages, whatever they may be, we 
subtract the expenditure necessarily incurred by the members 
of the unions, and likewise duly estimate the other inconve- 
niences and even distresses suffered from time to time by them 
and their families, in consequence of their system of com- 
bining against their employers, — even setting aside loholly 
the permanently injurious effects to result, — I think that an 
unprejudiced person can scarcely avoid concluding against 
every system of the kind ; not only in respect to the interests 
of the community regarded as a whole, but also in respect 
to those of the very parties to benefit whom is the object 
proposed. 



332 THE PRINCIPLES OF 



CHAPTER VII. 

EFFECTS OF A LEGISLATIVE REGULATION OF THE HOURS OF 
LABOUR. 

An attempt has sometimes been made to improve the 
condition of the labourers by diminishing the number of hours 
in the day during which they arc required to work. The 
reader will easily perceive that this is equivalent to an attempt 
to raise the wages of labour. Whether an individual receive 
the same compensation for working ten which he received 
previously for working twelve hours of the twenty-four, or 
whether, the time of his work remaining unaltered, his wages 
are augmented in the proportion of five to six, must be 
a matter of indifference to the capitalist who employs him. 
The motives most commonly urged for a diminution of the 
hours of labour are these two ; first, the physical deteriora- 
tion of the individual from being overworked ; and secondly, 
his want of leisure, from the same cause, for improving his 
intellectual and moral nature. I will make a word or two 
of remark on each of these heads. 

It is not owing alone to too much of his time being devoted 
to labour that the physical or bodily constitution of the work- 
man is affected injuriously. The medical statistics of different 
countries teach us that the mortality, out of a given number 
of persons, is always less among the comparatively rich than 
among the comparatively poor ; and that, from the upper 
extremity of this scale to the lower, a progressively aug- 
menting physical deterioration is thus indicated. At least, 
the only exception to this general remark is presented by 
the very rich, who live in idleness, and who are in conse- 
quence apt to seek a refuge from the miseries of the ennui 
which it generates in the pleasures and the vices of dissipa- 



POLITICAL ECONOMY. 333 

tion. In proportion, then, a-s the wages of labour are low- 
ered, will the physical condition of a people be deteriorated. 
Now the wages of the labourer are lowered, — his real wages 
I, of course, mean, — when his command over the necessa- 
ries and luxuries of life is diminished ; and this again can 
take place, either by his being unable to obtain, in exchange 
for a given portion of his labour, as great an amount of 
those necessaries and luxuries as before, or by his being 
obliged to labour during a longer time that he may procure 
the same amount of them. As great a gratification surely 
may be enjoyed by being relieved from oppressive labour, as 
can be furnished by the commodities produced by it. The 
tendency accordingly, in the progress of society, will be for 
the daily wages of the labourer to be augmented, while the 
hours during which he works in the day are less numerous 
than they were ; and, on the contrary, diminished, while the 
hours of work are greater in number than they were before. 
And the analogy having been pointed out between the two 
cases I have been comparing together, it will follow that 
every argument which will apply to evince the propriety of 
diminishing the hours of labour, will apply with equal pro- 
priety, so far as the physical deterioration of a people is 
concerned, to evince the propriety of augmenting the rate of 
wages generally. 

Let us, in the next place, trace the consequences which 
will result from abbreviating the hours of labour, without at 
the same time making any alteration in the amount of daily 
loages to he paid. This, as has been explained, being in 
fact an augmented rate of wages, must be accompanied by 
a fall in that of profits. Population, on account of the first 
of these effects, will advance with unusual rapidity ; while 
capital, on account of the other, will be accumulated more 
slowly. For both these reasons, my readers will now under- 
stand, without any explanation on my part, that wages will 

43 



334 THE PRINCIPLES 0» 

gradually lull to nearly their former rate, — so nearly to their 
former rate, as to render the additional wages received by 
the labourers no sufficient compensation to society for the 
violation of the rights of property implied in every compulsory 
raising of the rate of wages. Or, in other words, since every 
violation of those rights has a tendency, by checking the 
accumulation of capital, to cause wages to fall, more will, 
in consequence, be eventually lost to the labourers than the 
little advantage which they may derive in the manner and 
for the reason above stated. 

In the remarks made by me in this and the tvt^o preceding 
chapters, my language may, perhaps, have been somewhat 
too unqualified when I spoke of every taking from the rich 
for the benefit of the poor being a violation of the rights of 
property. There can be no doubt of the correctness of this 
assertion where the poor are the only parties to be benefited. 
Where, however, any transfer of property, of the kind men- 
tioned, can be shewn to be uhimately advantageous to the 
rich themselves, to an extent more than equivalent to the 
loss incurred by them in the first instance, it may become 
the duty of the government of a country to cause it to be 
accomplished. It is, indeed, on this ground alone that the 
interference of the government with the property of individuals 
of whatever class, by taxation, or in any other way, can be at 
all justified. 

We have here a test of the expediency of taking from the 
capitalists and giving to the labourers employed by them, 
which, however it may fail in the case oif a full-grown man, 
may possibly yield us a diflferent result if applied to the chil- 
dren who find employment in factories and elsewhere. By 
restricting in their case the hours of labour, time would be 
found for educating them; and when those children shall 
have arrived at manhood, the condition of the labouring 
community will not fail on this account to be essentially 



POLITICAL ECONOMY. 



335 



changed for the better in a moral point of view. It is scarcely 
necessary to say how desirable such a result M'ould be in 
reference to the best interests of a country, and in reference 
too to the interests properly understood of the richer as well 
as of the poorer classes. Any attempt to improve the condition 
of the uneducated adult labourer, by a positive interference 
on the part of the government to relieve him from some of 
the hours of labour, would in my opinion be productive of 
very little corresponding benefit. It is not improbable 
that the leisure time provided for him, and to which 
he has been hitherto unaccustomed, may contribute to 
deteriorate instead of improving his condition, by being spent 
as often in dissipation and vice, as in the business of acquiring 
knowledge or exercising his mental faculties. 



CHAPTER VIII. 

THE SYSTEM OP PRISON LABOUR CONSIDERED. 

Some two or three years since, a considerable clamour was 
raised by the mechanics in the state, and especially in the city 
of New York, on account of the system adopted of setting the 
state-prisoners at Sing Sing and Auburn to work, and 
then disposing of the articles produced by them, with a view 
to provide either wholly or partially for the expense of sup- 
porting and guarding them. They (the mechanics) complained 
that an indignity was put upon them, and their rank in the 
community lowered, by the prisoners being employed exclu- 



336 THE PRINCIPLES OF 

sively in mechanical occupations ; and thai it was not only 
injurious to their interests, but likewise unjust, to subject their 
honest industry to a competition in the market with that of 
persons convicted of crime. 

To inquire into the vahdity of the former of these com- 
plaints does not properly lie within the scope of our science ; 
and I shall, therefore, content myself horo with an acknow- 
ledgment of my inability to perceive any ground for it in the 
circumstance of the convict being employed in mechanical 
and not in other occupations, or, in other words, being 
employed in the production of material and not of immaterial 
wealth. Such must of necessity be for the most part the 
case, if they are to be employed at all in the business of pro- 
duction. Moreover, it should also be recollected that the em- 
ployment in question is not assigned as a degrading punishment. 
The true objects of it, — whether in this way best attained or 
not, is here a matter of no moment, — besides that of relieving 
the community from a certain amount of taxation, which 
would otherwise be necessary for meeting the expenditure 
required for the support of the prisons, is the reform of the 
criminal, by the useful occupation of the time at his disposal, 
and the furnishing him at the period of his discharge, where 
he did not already possess it, with an honest and therefore 
honourable means of gaining a livelihood. 

Whether the mechanics, because of the competition of con- 
vict labour, will make less profits than they would otherwise 
do, is a question which I shall first examine on the supposition 
of the products of the labour of the convicts being disposed of 
at their market price, that is, at a price neither cheaper nor 
dearer than that at which the like commodities are ordinarily 
sold. Here, it is plain, the competition will be precisely of the 
same nature with what would ensue upon the investment of 
an additional amount of the labour and capital of any portion 
of the community in the business or employment of the 



POLITICAL BCONOMT. 337 

mechanics concerned. The prices of the commodities pro- 
duced will fall, and the profits of the producers be reduced 
below their usual rate. Capital will then, of course, be trans- 
ferred to other employments, until prices and profits be 
restored to their former level. But when capital is transferred 
from any one employment to another, the fund from which 
wages are paid in the former will be necessarily diminished ; 
and a transfer of labour must therefore also take place. 
During these transfers, much inconvenience will be suffered by 
both capitalists and labourers. As soon, however, as they 
shall have been completed, the ordinary rates of profits and 
wages will be received in every branch of industry alike. 
And those mechanics, be they masters or journeymen, who 
continue to be engaged in the branch of industry interfered 
with by the system of convict labour, being as well ofl^ as the 
mechanics generally, — nothing besides having occurred to 
diminish in any degree the whole amount of production, — will 
have no reason for just complaint. 

Most of the complainants adverted to would, indeed, readily 
assent to the conclusion just arrived at. They do not so much 
object to the competition of convict labour in general, as to 
all such competition when the commodities produced are 
thrown into the market at a reduced price ; and it is when 
the regular mechanic is thus undersold, that he has loudly 
invoked the legislature of his state to interfere in his behalf. 
Let as examine if, in so acting, he has had reason on his side, 
or if he has been deceived by appearances only. 

Let us suppose the products of convict labour to amount to 
a tenth part of those of the regular mechanic which were 
purchased and consumed in a given time, and in a given 
market ; and moreover, that the former products are sold at 
half the price they will usually command. It is manifest that 
the persons who have obtained the commodity in question at 
half-price will be disposed to consume it more abundantly 
than if they had had to pay the full value for it. The demand 



338 THE FRINCIPLES OF 

for it will, in other words, become greater than it was ; and 
the consequence will be, that the supply of it will not be 
required to be diminished to the same extent as it would be if 
the price of what is produced by the convicts were left to be 
determined by the freest competition among all the parties. 
This again is tantamount to saying that a less amount of 
labour will have to be transferred, and that the present incon- 
venience suflbred by the mechanics will not be as great. 
When those transfers shall have been eflccted, all classes of 
the mechanics will receive the ordinary profits and wages ; 
and no room will exist for just complaint on the part even of 
those who have been undergoing a temporary inconvenience. 

There is nothing in the above argument limiting its appli- 
cability to the case when the pi'oducts of the convicts' labour 
are sold at half the usual market price. The conclusions just 
arrived at will be the same at whatever deduction from their 
market price those products are sold, excepting only that, in 
proportion as their price is lowered, the inconvenience tem- 
porarily undergone will be lessened ; and this will be the least 
when their price is lowered to the greatest possible extent, 
that is when they are given away gratuitously. 

It must be apparent to the reader that if the employments of 
the prisoners be sufficiently diversified, so that only a few of 
them shall be set to work to produce the same kind of com- 
modities, the temporary inconveniences of which mention has 
been made may be rendered so very trifling as to be wholly 
unworthy of notice, when compared to the relief of the 
public from a certain amount of taxation, and the attainment 
of the other advantages proposed by the system of prison 
labour. 

The clamour against the system, however, occurred not on 
its introduction as a measure of state policy, when the tempo- 
rary inconveniences were yet to be sufl^ered by the mechanics 
whose labour was about to be interfered with for the purpose 
of promoting the general welfare ; but when all those incon- 



rOLITlCAL ECONOMY. 339 

veniences had passed away, and the transfers of labour and 
capital were accomplished which had been rendered desirable. 
It was the abolition of what already existed that was aimed 
at; which aboHtion of it, so far from being an act of justice 
to the parties who were engaged in the branches of industry 
which had been interfered with, — unless where they were the 
very same individuals who had been engaged in them at the 
time the system I am speaking of was introduced, — would 
have increased their profits and wages beyond the ordinary 
rates, and have given them an undue, although temporary 
advantage, above their fellow-citizens. 

What has been delivered, concerning the effects of prison 
labour, will apply to the labour of persons employed in houses 
of industry, and in the workhouses of the poor ; and will apply 
with equal force. 



CHAPTER IX. 



OP ABSENTEEISM. 



A COUNTRY has been sometimes thought to be injured in an 
extraordinary degree, and the condition particularly of the 
labouring classes depressed, by the absence abroad of a 
considerable number of its men of property ; whose incomes 
in consequence, instead of being expended at home, are 
employed in the purchase of foreign necessaries and luxuries. 
It is in reference to the absentees from Ireland that this opinion 
has been oftenest put forth ; and against them, accordingly, 
no slight amount of odium has been occasionally excited in 
the breasts of certain philanthropic and patriotic individuals of 



310 THE rniNCIPLES OF 

the British Empire. Independently, liowever, of its connexion 
with a country whicli, for various reasons, is now attracting 
so considerable a portion of the attention of the political 
philosopher, the subject is one of sufficient general interest 
not to be passed over, in the present treatise, in silence. 

Tliat the emigration of capital is a national loss, has been 
sufficiently established in my second book. But the question 
under examination Jias no relation to capital. When the 
annual incomes of the absentees from Ireland are exported 
or remitted to them, they are in almost every instance destined 
to be consumed unproductively. The true question indeed at 
issue is, whether a certain unproductive consumption shall 
take place in one country or in another. Some writers have 
pronounced this to be, from the very nature of the case, a 
matter of the most entire indifference, and the outcry against 
absenteeism to be therefore altogether absurd. 

In my opinion, the analysis of the subject is not pushed as 
far as it ought to be, when all unproductive consumptions, of 
equal value, are assumed to have preciseUj the same effect on 
the wealth and prosperity of a people. There are two reasons, 
founded on the principles of political economy, why a certain 
value consumed unproductively at home should be more 
advantageous to a country than an equal value when so con- 
sumed abroad. The possessor of the wealth consumed is 
assisted in consuming it by his family, as well as by the 
domestics and other persons who may be in anij way em- 
ployed by him; and counting all these in the number of 
absentees, the diminution in the population of the country, 
whence they have absented themselves, will not appear to be 
by any means insignificant. And again, had all these staid at 
home, there can be no doubt, however unproductively the 
head of each family might consume his income, that a 
certain amount would be added to the wealth, and, as a con- 
sequence, to the population of the country, by means of the 
savings of the persons whom he employs. All these effects 



POLITICAL ECONOMT. 341 

are, nevertheless, inconsiderable when compared with those 
which have been supposed to result from the practice of 
absenteeism. 

To avoid the possibility of my meaning being misappre- 
hended, as well as to obviate any seeming inconsistency with 
my own definitions in what has just been dehvered, I shall 
here remind the reader that, in speaking of the consumption of 
an individual as being at any time wholly unproductive, I do 
so, in accordance to the usage of poUtical economists gene- 
rally, on the ground of all the vvealth, material or immaterial, 
which is produced for himself and family by the persons 
whom he employs for the purpose, being consumed by him 
unproductively, and therefore without constituting any per- 
manent addition to the national wealth. 

It may be proper, too, to meet an objection that may per- 
haps be made to the full force of one of the reasons assigned 
above for absenteeism being, to a certain extent, an evil. 
The absentee, it may be said, when he goes abroad, does not 
necessarily take with him the persons whom he means to 
employ in his service. When, for example, an Irish nobleman 
changes his residence from Dublin to Paris, his servants, and 
others who minister in any way to his desires, wall for the 
most part be Frenchmen, and not Irishmen. This circum- 
stance is, notwithstanding, a matter of no consequence here. 
If the means for supporting a given population be increased 
or diminished, population will, on the principles in relation to 
it which have been explained in a previous part of this work, 
be sooner or later increased or diminished proportionally, or 
nearly so. And whether or not all the persons to be employed 
in furnishing the services or commodities which shall be 
actually consumed by the absentee and his family are brought 
from Ireland to France, the result, in so far as we are at 
present concerned, will be the same. In both cases alike, there 
will be eventually a less number of Irishmen, and a greater 

44 



3 12 THE PRINCIPLES OF 

number of Frenchmen, in existence, than there would other- 
wise be. 

Now when we have succeeded in shewing that the progress 
of weahh and population in a country is repressed or retarded 
by any measure, the inference may be drawn that the measure 
in question has also a tendency to deteriorate the general con- 
dition of the people. Hence absenteeism has an injurious 
effect, to a certain extent, upon the condition of the people of 
Ireland. 

The circumstance of the incomes of the absentees being 
received by them in the form of money will neither add to nor 
take from the strength of the argument above stated. As 
money is abstracted from a country in one direction, it must 
necessarily flow into it from some or many others, on account 
of the tendency to a general fall of prices consequent upon 
such abstraction of it. Indeed, in almost every instance of 
the remitting of income from one country to another, it will 
not be money, but commodities other than money, that 
will be remitted ; the money actually received by the parties 
being in reality the proceeds of the sale of those commodities, 
— which proceeds are thus received by tliem through the 
instrumentality of bills of exchange. 

I may here add that, in stating the disadvantages resulting 
to a country from the absence of some of its inhabitants, I have 
also stated the advantages to be derived by a country from 
foreigners who travel, or temporarily reside, in it : for in rela- 
tion to our immediate subject, what is one country's loss is 
another's gain. 

Concerning the effects of an emigration of a portion of the 
inhabitants of one country to another, I have already treated 
in my second book. 



POLITICAL ECONOMr. 343 



CHAPTER X. 

OF PAUPERISM. 

Having examined in succession the different modes in 
which the condition of the labourers of a community may be 
improved, or in which that condition has been erroneously 
supposed to be susceptible of improvement, I nove come to the 
very important and difficult subject of pauperism. What are 
we to do with the able bodied poor who are unable to find 
employment ? And what with the sick, the aged, and the 
young, who are unable to work 1 

For a considerable period of time, the injunctions of the 
Bible, and the example of Christ, were so interpreted as not 
only to justify, but even to sanction, the indiscriminate giving 
of alms to the poor. It was thought that nothing could be 
more acceptable to our Maker than to establish hospitals and 
other institutions of charity, in which the parties gratuitously 
provided for enjoyed more comforts, in sickness and in health, 
than those of the same class, who, or whose relatives and friends 
for them, preferred to get along, under all circumstances, 
without any extraneous aid. A premium was thus administered 
to idleness and improvidence; and it is no wonder that industry, 
independently of the co-operation of other causes, should have 
lain comparatively dormant, and pauperism should have 
rapidly propagated itself 

At length, the appearance of the celebrated " Essay on 
Population," by Mr. Malthus, opened the eyes of the political 
economist to the evils of this system ; and, for a time, led 
some of them almost to revert to that indifference of feeling, 
concerning the poor and the wretched, which pervaded the 
heathen world before the light of Christianity dawned upon it. 
Here a state of things was presented in which religion and 



344 TU£ ramcirLEa or 

science seemed to be in direct opposition to each other. Many 
good people were disposed to escape from this dillicuhy by 
simply denouncing the speculations of political economy, as 
metaphysical and obscure, and as even pregnant with dan- 
gerous errour ; while, on the other hand, not a few of those 
who professed to be guided in their practice by the principles 
of this science sought to reconcile them with the precepts of 
the Gospel, as well as with their own kindly fceHngs, by 
making a marked distinction between public and private 
charity, and by maintaining the propriety of administering the 
latter only, and of administering it too only in extreme cases ; 
so as to affect injuriously in the slightest possible degree 
the habits of independence and forethought of the labouring 
poor. 

With the progress of investigation, the difiering parties 
have, however, been brought much nearer to each other ; 
until now the subject of pauperism admits of being expounded 
in entire conformity both to scientific principles and christian 
precept. Political economy has thus, like geology, furnished 
us with a remarkable insta k e of a science which, at a certain 
stage of its advancement, seemed to lead to results incompati- 
ble with the certainty of our previous knowledge ; but which, 
on its farther advancement, may be cited as a striking illus- 
tration of the consistency of truth. And from this, I may be 
permitted to add, we derive the important lesson, — a lesson 
which I would inculcate upon all those individuals who find 
it easier to utter vituperations of the science of political 
economy than to refute its conclusions by reasoning, — that 
the only effectual method to be adopted by any class of men 
to persuade the rest of the world to be of their opinion, if 
their opinion be a correct one, is not to sneer at, and repress 
by every means in their power the cultivation of any branch 
of human knowledge which may seem to oppose that opinion, 
but, on the contrary, to do every thing they can to promote its 
increased cultivation. The consistency of the great system of 



POLITICAL ECONOMY. 345 

truth is a proposition which constitutes the main argument for 
the unity of God, and which is indeed the foundation of 
natural theology ; and it cannot be too strongly impressed on 
the mind of every reasoner, or the impiety too firmly 
realised by him of undervaluing, or affecting to undervalue, 
the investigations of science, in whatever channel they may 
be directed. 

But to proceed with our subject. I shall first examine the 
case of the able-bodied poor. That of the infirm and the sick 
will then present to us no difficulty. And let us begin with 
the administration of private charity. 

Suppose in the actual condition of things in the city of 
Philadelphia, whatever this may be, the wealthy to appro- 
priate a certain portion of their incomes, to the value say of 
$100,000, for the relief of the poor who are able and willing 
to work, but who find themselves unable to obtain employ- 
ment. What will be the series of changes which will ensue 1 
And what, more especially, will be the ultimate eflfect pro- 
duced ? 

Here however, before attempting an answer to the foregoing 
questions, I feel the importance of stating distinctly what is 
meant when we speak of the poor, or the labouring classes, 
generally, being unable to obtain employment. The expres- 
sion, I shall remark, is one having reference to ti7)ie. What- 
ever may be the number of workmen who happen at any 
period to be without employment, when compared with the 
number who continue to be employed, they will be eventually 
provided for by a fall of wages. The wages, actually paid, 
will come to be divided among all the worknaen. This would 
at least be the case, were not one set of workmen thrown out 
of employment as another is in the act of obtaining it. If the 
unemployed labourers, then, could only wait long enough, they 
would in no event become the objects of charity. Here we 
have the difficulty, and the whole difficulty, in respect to them. 
But many of them will be utterly unable to wait long 



316 THE PRINCIPLES OP 

enough, and will earnestly appeal to the sympathies of their 
fellow-citizens for aid while they are in a state of transition 
from employment to employment, or from the service of one 
employer to that of another. And it is to meet this appeal, 
that the distribution among them of the $100,000 above 
mentioned is supposed to be made. 

Let this sum be distributed among them, in the first place, 
gratuitously. I need scarcely say what a premium would 
thus be bestowed on improvidence and idleness. The expec- 
tation of being supported, in part or wholly, when unprovided 
with employment, will render the workmen generally less 
anxious to obtain iX, or, having obtained it, less careful, by a 
diligent performance of the work assigned them, to secure to 
themselves a continuance of it. It will, in consequence, 
necessarily happen, independently too of any influx of paupers 
from neighbouring districts in which an equally extensive 
charity may not have been exercised, that the claimants for 
gratuitous aid will be multiplying from year to year; and where 
$100,000 was deemed to be an amount sufficiently ample to 
administer all the aid required, double the amount will, before 
long, be inadequate for this purpose. Indeed, no limit will be 
assignable to the increase of pauperism and of the funds 
requisite for its relief The process described, if only continued 
lon<T enough, would not stop until all the property of the rich 
was divided among the poor, — a state of things which, as I 
have before explained, could not fail to be yet farther deterio- 
rated, so that at length one scene of pauperism and wretched- 
ness would pervade the community. 

In what has just been stated, I have taken no notice of the 
particular source whence the funds which have been charitably 
applied v/ere derived. They may have constituted a portion 
of the wealth that was destined by its possessors to a pro- 
ductive consumption ; or a portion of the wealth that was 
destined by them to an unproductive one. To the extent in 
which the former, rather than the latter of these two supposi- 



POLITICAL ECONOMY. 347 

tions, may have corresponded with the facts of the case, an 
additional reason would be presented, wholly superfluous as it 
is, why the most injurious consequences should ensue from the 
administration of charity in the manner which has been 
described. Capital will have been transferred from the support 
of the employed poor to the support of the unemployed poor ; 
in many cases, from the support of the industrious workman to 
that of the idle and worthless portion of society. The effects 
before pointed out cannot fail, o-n this account, to be aggra- 
vated, and to be brought on with a greater rapidity. 

Next, let us suppose the $100,000 in question, instead of 
being bestowed gratuitously, to be employed in setting the 
unemployed poor to work in the business of production. It 
will then, of course, constitute a portion of the capital of the 
country ; and its effects on the condition of the poor will be 
the same as those of any other equal portion of capital. 
When once invested, it will however, no more than any other, 
furnish employment to the workmen who may happen to be 
unemployed. These will have to be provided for in the time 
to come, that is if their number continue to be on the average 
the same, by a hke subtraction as before from the incomes of 
individuals. But their number cannot fail to be augmented, 
in consequence of the habits of improvidence which the 
greater probabihty of obtaining employment, when from any 
cause they have been deprived of it, must necessarily gene- 
rate J, and a larger and a yet larger sum will, therefore, be 
requisite, in order to afford the same degree of relief from 
year to year. Although, very probably, a certain portion 
of the wealth which would otherwise have been consumed 
unproductively will have been applied to the reproduction of 
wealth, and for this reason will have had a favourable influ- 
ence on the condition of the community generally, there seems 
to be no reason for doubting that, not only will the disposable 
property of the rich, by the process now under consideration, 
be in time exhausted, but also that the poorer as well as the 



34S TIIR PKI.NCIPLKS OF 

richer classes will, however slowly, be ultimately reduced to 
the same degree of wretchedness, as it was shewn would be 
the case under our former supposition of the chanty adminis- 
tered being administered gratuitously. 

Not content with setting a certain number of the unem- 
ployed poor to work at the ordinary rate of wages, the 
benevolent feelings of some of the inhabitants of our smaller 
towns have sometimes induced them to associate together, 
with a view to provide work at that rate of wages for every 
one who might happen at any time to be unemployed. The 
promise, thus held out by the society, was soon met by appli- 
cations so numerous as to render it necessary on their part to 
solicit donations, in all manner of ways from their fellow- 
citizens, in order to augment the means at their disposal. But 
the more they got, the more also they found they were called 
upon to expend ; until at length, they found themselves over- 
whehned by the rapid extension of the pauperism belonging to 
the place, and by the influx into it of that belonging to other 
and neighbouring places. An utter discouragement then 
seized upon the society, which either dissolved itself, or sank 
into a state of inactivity. And just such consequences as these 
must ensue from every attempt to benefit the poor which is 
founded on the absurd notion that the funds for employing 
them, without compensating them at a lower rate of wages 
than the ordinary rate, are inexhaustible. 



POLITICAL KCOJfOMY. 349 

CHAPTER XL 

THE SUBJECT OF PAUPERISM CONTINUED. 

The two cases have been examined in the preceding 
chapter of the administration of charity to the able-bodied 
and unemployed poor, first gratuitously, and in the second 
place, if charity it can then with propriety be called, by setting 
them to work at the usual rate of wages. I shall now proceed 
to the consideration of the case of the poor who apply for 
aid being underpaid for their work, or, in other words being 
paid less wages than at the ordinary rate. 

Such a proceeding as this has been sometimes stigmatised 
as a piece of injustice to the parties whom those denomi- 
nated charitable profess to reheve ; and the latter have, in 
consequence of its adoption by them, been charged, in no 
very elegant form of speech, with "grinding the poor." 
Nevertheless, since every other method of dealing with the 
unemployed portion of the poorer classes has been shewn to 
be productive of evils of the greatest magnitude, we naturally 
turn to this as our only resource. If it should also be found 
not to be available for our purpose, we shall, indeed, be 
obliged to give up the cause of the poor in despair, excepting 
perhaps only in case of the last extremity ; or assenting to 
the doctrine, — I had almost called it the unreasonable doc- 
trine, — of the possibility of the conclusions of science being 
inconsistent with the precepts of religion, declare hostility 
at^ainst political economy for bringing us into a position where 
our reasoning powers are rendered altogether so unavailing. 
Fortunately, however, we are not reduced to a choice thus 
inconsistent with the analogy of our knowledge in general. 
The method of deaUng with the poor which I am now con- 

45 



3o0 THE PRINCIPLES OP 

sidering will be acknowledged by the reader, when properly 
understood, and properly carried into execution, to be that 
wliich will reconcile every dilficulty of the kind just stated ; 
and to be likewise the only one by means of which the poor of 
the present generation can be relieved, when thrown out of 
employment, without entailing a still greater degree of 
poverty and misery on the generation that is to follow. 

W a poor man, when without employment from the regular 
employers of labour, knew where to apply for work to be paid 
for at a lower rate than the ordinary wages, it is clear that he 
would very often make application for it, rather than be with- 
out work ; and "having obtained the work for which he applied, 
it is equally clear that he and his friends would diligently 
occupy themselves in endeavouring to procure for him regular 
employment in his trade or vocatiozi. His interests will be 
promoted by passing as soon as he possibly can from the receipt 
of a reduced to that of the ordinary rate of wages. He will, 
consequently, only be a temporary object of rehef. As the 
same remark can be made, too, in reference to every person 
who may apply for work at a reduced rate of wages, — while 
one set of labourers are thrown out of employment, and are 
disposed to become the objects of relief in the way now sup- 
posed, another set will cease to be the objects of relief, and 
will be passing into the service of the regular employers or 
capitalists. And were the system I am now considering to 
be for a time in operation, experience would teach us how to 
adjust the wages of relief in such a manner that the number 
of applicants to obtain them should be no greater than that of 
those who were declining to receive them any longer. 

Here then we have an important advantage of this system 
of managing the unemployed poor over those systems con- 
cerning which I have already inquired, to wit, that it is 
practicable to limit the number of objects to be relieved ; 
provided, that is, there be nothing in the system itself, all 
things being taken into account, which is calculated to 



POLITICAL ECONOMY. 351 

deteriorate the general condition of the community,— a posi- 
tion I shall now endeavour to make good. 

I shall admit, in the outset, that the confidence of being 
relieved in a season of difficulty, no matter how that relief 
may be administered, will of necessity have a tendency to 
impair the habits of foresight of every individual ; and all that 
can in this respect be said, concerning the workmen who are 
placed in the circumstances I have supposed, is that, consis- 
tently with being relieved, their habits of foresight and 
independence could scarcely be impaired in a less degree. 

But the condition of a people, or to express myself in other 
words, the command which they possess over the neces- 
saries and luxuries of life, depends quite as much upon the 
comparative extent of their desires for enjoyment as upon 
their habits in respect to foresight. In accordance with this 
view of the subject, it would in my opinion be found, on 
comparing together two different countries, in one of which 
the wages of labour were double what they were in the other, 
or the same country at two different periods, in the one of 
which periods the wages paid were double what they were in 
the other period, that twice as much would not be saved from 
the double rate of wages. Political economists seem to me, 
indeed, in general to estimate too highly the amount which 
the labouring poor can be expected to save, in preference to 
consuming it on their immediate gratification. It is to be 
feared that, even when their condition shall have become 
improved to the fullest extent in which we can reasonably 
expect it to be, by far the greater portion of their incomes will 
be consumed in the last-mentioned manner, or, in other words, 
without leaving any trace of it behind. 

Now the effect, other circumstances being the same, of 
their being enabled at all times to get employment at reduced 
wages, will be to prevent their desires for luxuries from being 
contracted as much as they would otherwise be ; or what here 
obviously amounts to the same thing, to enlarge those desires. 



352 THE PRINCIPLES OP 

To satisfy ourselves of this, we need only reflect on the 
misery to which the poorer classes of the labouring commu- 
nity are liable to be occasionally subjected, where no provision 
has been made by the wealthier portion of society, or by the 
public, for assisting them on the occurrence of any emer- 
gency, — a misery to suffer which cannot but tend to render 
the parties less desirous than they were to obtain the range of 
enjoyment they were accustomed to, and permanently to 
degrade, to a certain extent, their condition. 

A due consideration of what has been said above appears 
to me to be in itself quite sufficient to induce us to hesitate in 
giving our assent to the doctrine, that a provision for the 
otherwise unemployed poor, of the nature supposed, must 
necessarily be productive of more evil than good. When, 
however, this provision is accompanied in its administration, 
as it ever ought to be, by every practicable eflbrt to better 
the moral condition of the subjects of our charity, there can 
no longer be any doubt on my mind of the expediency of 
adopting it, and of complying by so doing with the unequivo- 
cal injunctions of the religion which we profess, as well as 
with the promptings of our benevolent feelings. Just in pro- 
portion as we shall succeed in diffusing among the paupers, 
whose bodily wants we contribute to relieve, the blessings of 
religion and of sound morals, and shall see that their children 
receive the benefit of even the lowest order of education, will 
we the more effectually guard against the evils adverted to, 
by the tendency of religion, of morals and of education, as 
has been repeatedly mentioned, to enlarge the command of a 
people over the necessaries and luxuries of life. And in this 
way only it is, in my opinion, possible to be the instrument 
of much immediate good to the poor and the wretched, with- 
out incurring the hazard of eventual detriment to the commu- 
nity. 

The confidence which I have in the influence of the moral 
appliances of which I have been speaking, in extending the 



POLITICAL ECONOMY. 353 

physical enjoyments of a people, is so great, that I have no 
fears of injurious consequences of any description to ensue 
from the widest exercise of private charhy that is at all 
probable. In my view, let an individual, instead of indiscrimi- 
nately relieving every applicant for his bounty at his door, 
from a mistaken notion of duty, or that he may speedily rid 
himself of the annoyance to his feelings resulting from the 
presence of so unwelcome a class of visiters, resolve in no 
case, unless where the distress suffered is manifestly extreme 
as well as real, to administer any relief whatever to the poor, 
without first making sufficient inquiry to protect himself and 
the community from the effects of imposture, and also without 
first visiting the abodes of misery, or it may be of vice, and 
supplying the moral as well as physical wants of their 
inmates ; — let him do this, and he may have the satisfaction 
of knowing that the good which he is doing, whatever evil 
tendencies may be in operation, will be pure and unmixed 
good. But most persons will say that they have not the 
leisure to spare from their regular occupations, which is 
required by this mode of dealing with the pauperism of their 
vicinities ; or that they txe otherwise disqualified. I reply 
that they should be careful not to mistake their indisposition 
to undergo that trouble, without which no charity can be 
beneficially exercised, for a want of leisure, or for inability on 
their part. If, however, this be in reality the case, the only 
proper proceeding for them to have recourse to is to appoint 
others to be their almoners vyilh the poor, who have more 
adaptation and leisure for the purpose than themselves, or who 
are actuated in a greater degree by the spirit of a Howard or 
a Fry. 

A question of great importance, and one on which political 
economists are not yet agreed, is now presented for our consi- 
deration. Shall the relief of pauperism be left entirely to the 
benevolence of private individuals, or is it a proper subject for 
legislative enactment ? With some, the abuses of the poor- 



354 THE rnixciPLEs of 

laws in England, together with the abuses in the public 
administration of charity which it is notorious have not 
unfrequently occurred in our own country, have induced an 
opinion altogether hostile to any legislation concerning 
pauperism. There are others, on the other hand, who mistrust 
the adequacy of private charity, or of charity administered 
by voluntary associations of individuals, to provide for all the 
cases of pauperism which may occur, of a nature to render it 
desirable that they should become the subjects of relief. 

Such a system of poor-laws as is based on the principle of 
setting the able-bodied pauper to work, at wages lower than 
the ordinary rate, has the advantage, over a condition of 
things in which he is left, in the time of his utmost need, 
exclusively to the tender mercies of his fellow-man, in the 
greater certainty of finding the assistance he requires, and at 
the time too when he most requires it, as well as in the greater 
uniformity of the assistance rendered under similar circum- 
stances of distress; — a certainty and a uniformity, as I have 
shewn, not at all productive of injurious consequences to 
society ; but on the contrary desirable, on the system of pauper 
relief in favour of which I have expressed myself, because of 
their beneficial effect, in preventing the labourers, who are 
from time to time thrown out of employment, from being, in 
consequence, depressed in their condition as much as they 
would otherwise be. 

The great difficulty of an efficient poor-law lies in its prac- 
tical execution. It is to be hoped that, with the diffusion 
among the community of more enlightened views of political 
economy, and especially of the principles which should regu- 
late our practice in relation to alms-giving or pauper relief, 
properly qualified overseers of the poor will be more readily 
procurable than they have hitherto been. And I am, at least, 
not yet prepared, without farther evidence from experience, 
to embrace the opinion of the impracticability of every 
attempt, by the action of the legislature, to relieve the destitute 



POLITICAL ECOKOMT. 355 

portion of the community, so as at the same time not to affect 
the public welfare injuriously by the encouragement of habits 
of improvidence and dependence among the labourers gene- 
rally. 

One advantage of a public provision based on proper prin- 
ciples, for the labouring poor when thrown out of employment, 
seems to me to be sometimes entirely overlooked. I allude to 
the consequent greater willingness of the poorer classes 
generally to acquiesce in the inequalities of fortune which 
unavoidably result from the maintenance of the rights of 
property ; rights so important, in reference to the interests of 
both rich and poor, to be always inviolably maintained. 

After what has been delivered concerning the destitute 
poor who are able and willing to work, I need not dwell on 
the case of the infirm, the aged, and the young, who are 
unable to do so. Few or none who refuse to extend a helping 
hand to the former class would refuse it to the latter ; and a 
large proportion of those who earnestly object to every public 
provision for the able-bodied poor concede, notwithstandino^, 
the expediency of such a provision for all others. Moreover, if 
my readers shall have assented to the general correctness of 
the views which I have laid before him in this and the pre- 
ceding chapter, I may safely leave him to apply those views 
for himself to the elucidation of the case now before us. 

I shall now conclude what I have to say on the subject of 
pauperism by once more stating the main principles on which 
every systematic effort for relieving it should be based. 
These are, first, that the party relieved should never be 
rendered as comfortable as the independent labourer, and, 
for every piece of work done by him, that he should be 
underpaid ; and secondly, that reUef administered to the 
physical wants of a pauper should, as far as practicable, be 
accompanied by an attempt to improve him religiously and 
morally. It is by a disregard, or forgetfulncss, of these 
principles, that pauperism has been so often multiplied by the 



356 TIIK TRINCIPLES OF 

very means which wore destined to eradicate it ; thus fur- 
nishing one of the most remarkable instances of the injury 
which benevolence, unenhghtcncd by knowledge, is capable 
of inflicting. 



CHAPTER XII. 



OF TAXATION. 



The only subjects remaining to be discussed in the present 
treatise are those which relate to the revenue of the govern- 
ment, and the sources whence it is to be derived. These 
sources may be classed under the two general heads of taxa^ 
lion and public loans. 

In reference, first, to taxation, it will be most convenient to 
inquire into the operation of particular taxes, with an especial 
view to ascertain the parties on whom they are ultimately 
incident, before deducing the general principles by which the 
legislature of a country ought to be guided in the enactment 
of a system of taxation. It is in fact, only by adopting this 
arrangement that those principles can be exhibited to the 
student in an unobjectionable form. 

I shall begin with supposing a tax to be imposed upon rent, 
wherever this maybe paid, be it in agriculture, manufactures, 
or commeice ; or I may say simply a tax upon the rent of 
land; considering the land, as was done in a preceding book, 
as the representative of all the situations or sites in which 
there is a return of rent to the proprietor, over and above the 
ordinary profits of the capital invested by him. Such a tax 
is merely a supposable one. From the impossibility of draw- 
ing the line practically between what is rent and what profits, 



POLITICAL ECONOMY. 357 

the actual imposition of it may be regarded as out of the 
question. Still it will not be uninteresting or unimportant to 
trace its operation and ultimate incidence. By so doino^, we 
shall, indeed, be throwing light on the effects of some very 
customary modes of taxing a people. 

Whether the government exact the tax of which I am 
speaking from the landlord or proprietor of the land, or exact 
it from the farmer to whom he may have leased the land, and 
who pays him rent, it will be ultimately incident upon the 
landlord alone. If the first be the case, the landlord will not 
on this account, on the renewal of the lease, be able to get 
any additional rent from his tenant ; for there is no reason 
why the supply of or demand for land to be leased should be 
altered in the slightest degree. He got as much as he could 
for the use of his land before the tax was imposed ; and he 
can do no more than this now. Should he be so unwise as to 
insist upon receiving a higher rent, — and rent, it will be 
recollected, is the excess of the net produce of the land over 
the ordinary amount of agricultural profits, — the farmer 
would, obviously, not be able to realise those profits, and would 
consequently refuse to take the lease. So, too, would every 
other farmer ; and the result would be that the landlord would 
have to cultivate his own land, and to continue therefore to 
pay the tax. 

On the other hand, if we suppose the tax to be imposed in 
the first place on the farmer, there is no immediate remedy to 
which recourse can be had by him. At the expiration of his 
lease only, will he have it in his power to throw the burthen 
of the tax from off his shoulders on those of his landlord. 
Then, however, he will most certainly do it in the manner 
above described. 

From the ultimate incidence on the proprietor of the land of 
every tax imposed upon rents, it follows that the whole rental, 
strictly so called, of the land of a country, could it be dis- 
tinctly separated from the profits of the capital invested upon 

46 



358 THB PBINCIPLE3 OT 

the land, might be considered as constituting a fund for taxa- 
tion, which could be diminished by it to any extent, and even 
entirely exhausted, without the community, — the landlords 
alone excepted, — being subjected to the payment of the 
minutest portion of it. 

Rent has been shewn to be property of a description differ- 
ing from every other, in the very remarkable circumstance of 
its being conferred gratuitously on the owners of the land ; 
and, whatever may be its amount at any particular period of 
time, its owners may, almost always, calculate upon deriving 
from it a revenue which will be continually augmenting in 
every succeeding period of the advancement of the country in 
wealth and population, and, all the while, without any sacrifice 
on their part. Now granting the extreme importance to the 
welfare of society of preserving inviolate the rights of property, 
and of studying to make the burthen of taxation press as 
equally as practicable on all the classes composing it, might 
it not be asked, with some plausible expectation at least of the 
inquiry being answered in the affirmative : — Whether, under 
the circumstances which have been mentioned, it would not 
be just, as well as expedient, to raise the whole of the public 
revenue by a tax upon the rent of land, and if more revenue 
were needed than all the rents of the country would amount 
to, not to resort to other taxes until those rents had been first 
exhausted ? There could be no hesitation, it seems to me, to 
give an affirmative answer, if such a method of taxation had 
been practised in the country from its original settlement. 
Every person then, who at any time became possessed of 
land, would be aware that it would never yield him a greater 
revenue than the ordinary profits of the capital invested by 
him upon it, and that it would never be worth more than the 
value of such capital ; — that is, provided the government were 
always to take for itself the whole of the rent. And in case 
it onl}'^ took a part, the land, when sold, would be transferred 
from the seller to the buyer, subject to the whole of the rent 



POLITICAL KCONOMY. 359 

being taken at the pleasure of the government. This condi- 
tion of the sale would have its full effect on the value of the 
land, and could manifestly be pleaded by the government in 
justification of its taking afterwards as much of the rent as it 
pleased. But, in the actual state of things, the case is very i 
different. The possession of the lands of a country has been 
passing, it may be for many centuries, with more or less 
frequency, from individual to individual ; every new purchaser 
having as entire a reliance on the secure enjoyment of the 
produce, or advantages generally to be derived from it, as he 
could possibly have in the possession of any other kind of 
property. Hence it is that it would be quite as unjust, and 
therefore inexpedient, to tax exclusively or in an extraordinary 
degree the owners of the soil, as it would be to tax exclu- 
sively or in an extraordinary degree any other class of the 
community. 

It will be impossible to take from the incomes of the land- 
lords, or of any other class of men, without disadvantage to 
the community at large ; since the whole amount of savings 
will consequently be lessened,— or, in other words, the rate of 
the accumulation of capital will be retarded. Hence some of 
my readers may, perhaps, think it inaccurate to speak of the 
ultimate incidence of a tax on one class of the community 
alone. And so it would be, did not the political economist 
neglect for the time all consideration of any disadvantage so 
arising ; or which is the same thing, assuming it to arise, did 
he not limit his attention in the case to the greater degree in 
which it affected one class rather than another. 

Others among my readers may regard the remarks just 
made to be altogether superfluous, and the impossibility of 
taking from the incomes of certain classes of the community 
without disadvantage to every other to have been too hastily 
asserted. They may maintain that, if what is taken is destined 
to a necessary, and therefore a productive expenditure or 
consumption, the national wealth could not be thereby dimi- 



860 TUB PRINCIPLES OF 

nished, nor the rate at which capital is accumulating be, in 
consequence, in any degree retarded. But while this is unde- 
niably true, I shall remark that, in what has been above 
stated, and when the question is argued of the ultimate inci- 
dence of any tax imposed, all taxation is regarded as a 
sacrifice of a certain portion of the national wealth, which, 
however desirable or necessary it may be, is nevertheless an 
evil to be deprecated. 



CHAPTER XIII. 

THE SUBJECT OF TAXATION CONTINUED. 

Let us now trace the consequences of imposing a tax on 
the profits of capital, and on the profits of capital in all 
employments alike. 

Such a tax, lohere it has not the effect of altering the 
exchangeable values of things, will, obviously, not have the 
least influence on the amount of rents paid. The proportions 
in which the community will choose to consume the various 
necessaries and luxuries of life will continue the same ; and 
these will, therefore, be produced in the same proportions as 
before. No transfers of capital will take place ; and the share 
of the whole produce of the land, and of the whole produce 
too of the labour and capital of the country, which is distri- 
buted to the landlords, will remain unaffected. But, so long 
as we suppose wages to suffer no diminution, the rate of profits 
will have been lowered. Now, when the rate of profits is 
lowered, it has been shewn that the prices of all such commo- 
dities as are, in a greater degree than usual, the products of 
fixed rather than of circulating capitals will fall, when compared 



POLITICAL ECONOMY. 361 

with the prices of such as are in a greater degree the pro- 
ducts of circulating than of fixed capitals. In so far, conse- 
quently, as agricultural products may, on this account, have a 
higher or a lower exchangeable value, will it be possible for 
rents to be affected by a tax imposed, in the first instance, on 
the profits of capital. 

Wages, however, will not be maintained at their former 
rate, if that of profits be lowered. In whatever degree the 
capitalists may be disposed to economise their expenditure, — 
their unproductive expenditure I mean, — it is not to be sup- 
posed that they will economise it to such an extent, as to 
enable themselves to save as much out of their incomes as 
before. Hence capital will accumulate less rapidly than it 
would have done but for the imposition of the tax under con- 
sideration. The consequence of this on wages, I shewed, 
when treating of population, to be to reduce them to a lower 
level. This, again, implies that profits will not fall quite as 
much as they would otherwise have done ; so that the tax, 
instead of being incident exclusively on profits, will come to 
be divided between profits and wages'. 

The eflfect of a fall of wages on the relative prices of 
commodities being the opposite of that resulting from a fall 
in the rate of profits, viz. to cause the exchangeable values 
of those which are the products chiefly of fixed capitals to 
rise, when compared with those which are the products 
chiefly of circulating capitals, it is very possible that the fall 
of both profits and wages, just deduced, might so neutralise 
each other's influence, as to prevent any alteration whatever 
from occurring in the exchangeable value of agricultural 
products ; and therefore in the rent of land, excepting such 
as may continue to result from the general retarding of the 
rate of the accumulation of capital. It will then be correct 
to say that no portion of the tax originally imposed on the 
profits of capital will be incident upon the landlords. 

To what extent a tax on the profits of capital is incident 



303 THE PRINCIPLES 0» 

upon wages, will depend, other circumstances being the same, 
on the rate of profits. Where profits are high, the motive to 
save will be greater, as has before been mentioned, than it 
will be where they are low ; and the same proportional tax 
upon thcin may, consequently, cause very diflercnt values, in 
the two cases, to be abstracted by the capitalist from his pro- 
ductive expenditure. In other words, the degree in which the 
labourer may be affected disadvantageously will be according 
to that in which the rate of profits was previously reduced. 

By diminishing the capital of a country, or, what amounts 
to the same thing, by retarding its increase, a tax on the 
proceeds of capital operates, very plainly, in the same manner 
as if it were a tax on capital itself. If the government 
indeed, instead of ten per cent, upon profits, — profits being 
say at the rate of ten per cent, on the capital invested, — 
were to tax capital one per cent., the sum to be paid would 
be the same in both cases ; and the productive would, in all 
probability, bear very much the same proportion to the 
unproductive consumption of the capitalist in the one case 
as in the other, were it not for the impression on the imagi- 
nations of men of the natnes given to the two taxes respec- 
tively. To a certain extent it will for this reason be true 
that, when an individual has a portion of his capital taken 
from him, he will more readily acquiesce in the loss he has 
sustained, and will be disposed to make somewhat less of a 
sacrifice of present gratification for the purpose of replacing 
it, than if the same amount were taken from his income. 
The extent of this difference is however, not unfrequently, 
very much exaggerated. 

Here, as in the case of a tax on rents, it may be observed, 
that, on account of the impossibility of distinguishing in 
practice between rents and profits in those employments 
where rents are paid, especially in agriculture, a tax on 
profits is merely a hypothetical tax. And the same may 
also be observed in reference to a tax on capital ; since we 



POLITICAL ECONOMY. 363 

can in no instance form any definite estimate of the amount 
of capital which has been expended, or would reijuirc to be 
expended, to bring a portion of the soil of a country into its 
present condition. 

Let us, next, look at the nature of a tax on w^ages. Such a 
tax, it may be surmised, cannot be as dissimilar in its mode 
of operation from that of a tax on capital, as some have 
supposed ; for it will be recollected that wages constitute one 
of the elements of capital. I say surmised, since things 
which go by the same name, on account of their agreement 
in certain particulars, may yet, in other respects, be pos- 
sessed of very different attributes. I shall proceed, then, to 
compare together the series of changes which will ensue on 
the imposition of a tax upon the wages of labour, and of an 
equal tax on capital in general. 

First, it is evident that, if the government shall exact from 
the employer of labour a sum proportional to the amount of 
wages paid by him, he will I'egard it precisely in the same 
light that he would an equal tax on the whole of his capital; 
because, in the existing state of the arts, he will of course 
find it for his interest to apportion his capital between 
wages and the other descriptions of it just as he did before. 
A tax on wages is thus far, therefore, necessarily identical 
with a tax on capital. 

Now let the labourer be taxed, and a certain per centage, 
suppose ten per cent., be subtracted from his wages by the 
government. The question is : — Will he be subjected to 
more deprivations than if the same value had, in the first 
instance, been taken from the capital of his employer ? Will 
the fall of wages, in fact, be greater in the former case than 
in the latter ? It seems to me that, in reference to the imme- 
diate results produced, no reason can be conceived for 
thinking that the fall would be greater in the sHghtest 
degree. As this is a point of some importance, I would 
not only request of the reader to consider it well before he 



364 THE PRINCIPLES OF 

advances farther, but likewise to look carefully at what 
would happen if the contrary from the imposition of a tax 
were to occur; for, by this means, the point itself under 
consideration cannot I'ail to be more clearly understood. In 
place of supposing a tenth of his income to be taken from 
the labourer, or an equal sum from the capitalist who 
employs him, — let an amount equivalent to the tenth part of 
his income be added to it, by the repeal of a tax previously 
imposed or in any other conceivable way, or let an equal value 
be added to the existing capital of the country. The reader 
cannot fail to perceive, on a moment's reflection, that such 
an augmentation of this capital can in reality only occur, by 
the capitalists being enabled to pay wages exceeding in 
amount the wages before paid by the value which has been 
added to capital ; and that the immediate effects resulting 
from the two additions which have been supposed must be 
precisely the same. 

And if the immediate effects in the two cases be the same, 
I need scarcely add that the ultimate ones must hkewise be 
the same. 

But even though the labourer should be affected in the first 
instance in a greater dcgiee when a tax is imposed upon his 
wages, than when it is imposed upon the capital of his 
employer, it will not follow that his wages in the two cases 
will be ultimately different. On the contrary, through the 
more or less active operation of the principle of population, 
the reader cannot but perceive that very much the same rate 
of wages will come to be paid eventually m the one case as 
in the other. 

If a tax be imposed on the profits of capital, on capital, 
or on wages, in one branch of industry only, or in a greater 
degree in any one branch of industry than in others gene- 
rally, the effect will plainly be to cause a different distribution 
of the capital and labour of the country ; these being trans- 
ferred from where, in consequence of the supposed unequal 



POLITICAL ECONOMY. 365 

taxation, they are now applied at diminished rates of profits 
and wages, to where these rates are comparatively higher. 
This new distribution too, of capital and labour, will be 
accompanied by a diminished production of wealth; since 
the community will be obliged to consume to a certain extent 
what, but for the tax imposed, they would not have preferred 
to consume. 



CHAPTER XIV. 



THE SAME SUBJECT CONTINUED. 



A TAX on property differs from one on capital, first, in 
being a tax on the landlords as well as on the capitalists. 
The land possessed by the former class will have a certain 
value ; and it is on this value that the tax in question is 
imposed. But two pieces of land, or other portions of real 
estate, of the same exchangeable value, may yield very 
different returns to their proprietor. Supposing them to be 
worth each $10,000, the one may, for example, yield him 
$600, and the other $300. Hence it may possibly be argued, 
that a tax on property would here be a very unequal one. Not 
so, however ; because the only reason why the land which 
yields only 8300 is worth as much as that yielding $600 is 
that it is expected to compensate for a present deficiency by 
a larger future return. Accordingly, as the period for this 
approaches, the value of the land will be continually aug- 
menting. And its value at the end of a year will be $300 
more than it is now. Its proprietor has, therefore, no 
reason to complain of the rate at which he is taxed. Inde- 
pendently too of this reasoning, the mere fact of this property 

47 



36G THE PRINCIPLES OF 

being of equal exchangeable value with that of the other piece 
of land might be assumed as a sufRcient ground for such 
taxation ; for this circumstance alone is satisfactory evidence 
of equal advantages, all things considered, being derived in 
the two cases which are compared together. 

But secondly, a tax on property will equally affect the 
wealth which is consumed unproductively and that which is 
consumed productively ; and from this view of the nature of 
such a tax, its effects will very nearly correspond with those 
that have been shewn to bo consequent upon a tax on the 
profits of capital. 

On a review of what has thus far been delivered on the 
subject of taxation, I cannot doubt that my readers will be 
led to assent to the general equity of a tax on property. 
There are two considerations only which, in my opinion, 
may perhaps induce some of them to pause for a moment before 
assenting to it, — that many persons having large incomes 
have, nevertheless, comparatively very little property, — and 
that it may be difficult to form a proper scale of taxation 
for the rich and the poor. 

In respect to the first of these, it will be recollected that, 
when capital is taxed, the effects are very nearly the same 
as they are when an equal tax is imposed on the profits of 
capital, and again that a tax on profits will operate very 
much in the same manner as one upon wages. And in respect 
to the second consideration just mentioned, I would make the 
scale of taxation a very simple one. I would tax every man's 
property, as far as practicable, in the very same proportion. 
To adopt this as a principle of action would be a refinement 
on the doctrines of free trade. It would be proclaiming to the 
world that government is in no case instituted for the purpose 
of discriminating between the different classes of society, 
according as they are rich or as they are poor; and that 
when the public good requires a certain amount of the wealth 
produced to be taken by the government, every portion of it 



POLITICAL ECONOMY. 367 

should be affected exactly in the same way as if the produc- 
tiveness of labour were proportionally diminished. By such a 
.system of taxation inflexibly pursued, much of the jealousy, 
less or more every where existing, of the poor towards the 
rich, would be as effectually removed as by any means 
which could be imagined. Both classes, also, would be more 
likely to feel that their interests are identified ; seeing that, in 
so far as all contributions for the general welfare are con- 
cerned, the one cannot be called upon to make a sacrifice, 
without the other being at the same time called upon to 
make a proportionate one. Indeed, the advantages of the 
system in question, in the view now taken of it, seem to my 
mind to be so very important, that I am almost disposed to 
maintain that governments have no right of acting on any 
other. 

Should it, however, be still urged by any one that a man 
owning property to the value of f 100 is less able to bear the 
loss of a dollar than another worth $100,000 is able to bear 
the loss of $1000, and that to tax them proportionally is 
therefore in fact to do injustice to the former, — I shall remind 
him of the manner in which a tax on property, however 
imposed, difiuses itself eventually among the different classes 
of the community, and shall express my conviction that the 
temporary inconveniences of a uniform rate of taxation are 
far overbalanced by the advantages which have been men- 
tioned. 

And let me not be charged, in consequence of any thing I 
have said, with being more disposed than political economists 
in general are to make the burthen of taxation press upon the 
poor. By shewing that the rich cannot be taxed without the 
poor at the same time suffering almost as much as if they 
themselves had been directly taxed, I have, on the contrary, 
not only furnished an additional instance of the manner in 
which the interests of the different classes of society are 
bound up together, but I have also furnished an argument 



308 TIIH PRINCIPLES OF 

against all taxation, of the rich as of the poor, excepting for 
purposes of unequivocal necessity or utility. 

Next to an uniform tax on property, I would prefer such a 
tax on incomes o( every description. 

The former of these taxes is the preferable one of the two, 
first, because the incomes of individuals are not as susceptible 
of being estimated with as near an approach to accuracy as 
is their property, or the amount of what they are at any time 
worth. This is sufficiently evident in the cases of those whose 
incomes arc derived from profits or wages, and still more so 
in that of the landlords, whose incomes, as this term is com- 
monly understood, are often a. very deceptive indication of 
their increase in wealth. Such increase, it has been before 
mentioned, may frequently exhibit itself by the increased 
value of the lands which belong to them. 

Another reason for preferring a tax on property to a tax 
on incomes is the greater degree in which the poor will be 
taxed in the latter case than in the foraier; although the 
disadvantage to them will be in a great measure only apparent. 
Why so, I need not explain to the reader. 



(CHAPTER XV. 



THE SAME .SUBJECT CONTIJfUED. 



The difficulty of estimating with accuracy the property or 
the incomes of individuals, together with the desire on the 
part of governments to disguise as much as possible from the 
different members of society the precise amount of the taxes 
which each of them is called upon to pay, have led to a very 



POLITICAL ECONOMY. 3G9 

general reliance, for supplying in a considerable degree the 
wants of the public treasury, on certain indirect modes of taxa- 
tion ; to which I shall now direct the attention of my readers. I 
allude to the taxes which are imposed on commodities when pro- 
duced at home, or when they are imported from abroad. In 
the former case they are denominated an excise, and in the 
the latter they are spoken of as customs or duties. 

When the excise is paid by the producer, as must necessa- 
rily be the case in the first instance, it is plain that it can be 
of no importance in respect to the ultimate incidence of the 
tax, whether he shall be obliged to advance it immediately 
after he shall have complete4 the entire act of production, — 
or at some previous stage of that act, as will commonly be 
the case when, instead of the commodity produced, the pro- 
cesses or instruments of producing it are the subjects of 
taxation. At whatever period payment may h^ve been, 
exacted from him by the government, he will expect it to be 
refunded to him by the purchaser of his products ; for then 
only will he be able to make the ordinary profits ; and unless 
those profits are made by him he will transfer his capital to 
other employments. The purchaser again, if his business be 
to retail those products, will, for a Uke reason, expect his 
advances to be, in their turn, refunded ; and so on, until the 
tax imposed fall wholly on the consumer. It is, moreover, 
worthy of note, that the consumer will not only have to pay a 
price for what he buys, greater by the amount of the tax than 
he would otherwise have had to pay for it, but that price will 
be yet farther enhanced by the profits which would have been 
yielded to the sum paid as a tax, had this been invested pro- 
ductively at the time of payment. 

These conclusions will likewise all hold good in reference 
to the duties imposed on importations from foreign countries, 
as was fully explained in the preceding book. The merchants 
cannot continue their business without receiving the ordinary 



3Z0 TUB PRINCIl'LSS OF 

profits ; and their capitals will be accordingly transferred to 
other employments, until profits are again equalised. 

It will not appear singular that the importers of commodities 
from abroad should be here on the same footing with the 
producers at home, if we recollect in what the business of 
production really consists, and that the merchant is a producer 
in the very same sense in which the farmer or manufacturer 
is entitled to be so designated. They are all of them occupied 
in adding utility to matter, not by any act of creation, — this is 
the prerogative of Omnipotence alone, — but by simply remov- 
ing it from one position in space to another. 

I have noticed in another place the singular doctrine which 
has been maintained by some individuals of the highest politi- 
cal standing in our own country, that, instead of a duty 
imposed on foreign commodities imported being ultimately 
incident on the consumers of those imports, it is in reahty 
incident on the producers of the commodities exported in 
exchange for them. At present, it may be proper to repeat 
that the only modes in which the producers or capitalists of 
a country can be ultimately aflTected by any tax whatever 
upon the consumption of the community, — and the parties, 
who hold to the ultimate incidence on the producers of a tax 
upon imports, do not deny the jirior incidence of it upon the 
consumers, — are, first, by the difficulty of making those trans- 
fers of capital and labour which might be rendered necessary 
in the course of the changes resulting from the imposition of 
the tax, and secondly, by any fall in the rate of profits which 
might ensue. 

Political economists adopt as a principle that an excise 
should be levied as late as possible in the production 
from first to last of a commodity, or, what is the same 
thing, on the finished product, rather than on the raw ma- 
terials, and the materials in difllerent stages of prepara- 
tion, from which it is produced. By proceeding in this man- 
ner, the advances required to be made by the capitalist 



POLITICAL ECONOMY. 371 

will not be needlessly augmented, Wliere a commodity too, 
on which a tax has been paid, becomes successively, when 
subjected to change, the materials of farther production, 
not one only, but several needless advances may be required. 
This last remark is, plainly, applicable in an equal degree to 
commodities imported from abroad, as to those produced at 
home. In all these cases, indeed, it is no doubt true that the 
advances made will be fully reimbursed, and reimbursed with 
the due amount of profits. Nevertheless, to be obliged to carry 
on one's business, as may not unfrequently be the case, with 
a larger amount of capital than, but for such a tax as I am 
now speaking of, would be required to carry it on with 
advantage, is a disadvantage, especially to the smaller capi- 
talists. 

Where an excise is levied on particular processes or instru- 
ments of production in the arts, the employment of all other 
processes or instruments is apt to be regarded as illegal, 
and to be proscribed accordingly. A check to improvement 
will thus be most improperly and most injudiciously applied 
by the government itself ; one of whose ch'ief objects should, on 
the contrary, ever be to give every encouragement in its power 
to the progress of improvement. 

Another evil, connected with every system of excise, is the 
inquisitorial character of the manner of collecting the tax 
imposed. The tax-gatherer must necessarily be clothed with 
an authority very susceptible of being abused, and therefore 
in fact very often abused ; and his undesirable visits to the 
manufactory or workshop will of itself be an annoyance. 
And this evil, like every other to which the producers of 
wealth are subjected by taxation, will not be confined to them- 
selves. They will, in truth, receive full compensation for it in 
an augmented rate of profits, of course brought about by the 
transfer of capital to other employments, and the consequent 
enhancement of the prices of the commodities which they 



372 TIIK I'RINCIPLKS OF 

produce ; that is, every vexation or annoyance inflicted will 
be paid for by the consumers. 

Here it may be observed that care should always be taken, 
in the enacting either of a system of excise or of a tariff of 
duties, — and this is true whether these last be intended as 
revenue or protecting duties, — that the tax imposed shall be 
comparatively lighter according to the facility with which it 
admits of being evaded. If this consideration be neglected, 
or if the taxation of any article be exorbitantly high, the con- 
sequence will inevitably be a disposition, more or less gene- 
rally extended among the community, to evade the law, and 
by dishonest artifices avoid the payment of the tax, — not to 
speak of the more aggravated offences of the smuggler. 

Besides the inconvehiences, already mentioned, which are 
connected with the taxes we are now occcupied in consider- 
ing, their collection costs more, generally speaking, than that 
of an equal amount of taxes directly imposed would probably 
do. And indeed, as was stated in the beginning of the present 
chapter, the principal, if not the only reason, why governments 
have so often preferred them to all others, is the possibility, 
on account of their comparatively imperceptible operation, of 
extracting from the people in this way a greater revenue than 
in any other. 

I need scarcely in this place remind the reader that, in 
speaking of the ultimate incidence of a tax on the consumer, 
and not at all on the producer, it is not intended to deny that 
the latter will be affected by the diminution of the national 
wealth which may be consequent upon the unproductive expen- 
diture of the tax. Such expenditure of it must have precisely 
the same effects as if labour had become less productive. It 
will therefore tend to produce a fall of profits. What the 
government actually receives is, however, never equivalent to 
the loss incurred by the tax-payers. Even if we omit the 
expenses of collection, this will not be the case when the tax 



POLITICAL EOONOMV. 373 

imposed is a partial one. To illustrate my meaning by an 
example : let the only commodity taxed be tea on its impor- 
tation into the country. Its price, as has been shewn, will 
rise. Many persons, especially if the duty upon it be conside- 
rable, will cease to consume it ; while those who continue to 
consume it will consume it in less quantity than they were 
accustomed to do. Now the gratification foregone by the 
consumption of other things instead of tea, which, but for the 
tax upon it, would have had the preference, is an item, and it 
may be a considerable one, that is manifestly a sacrifice 
made by the parties concerned, without any accession to the 
public revenue ; a sacrifice tending, also, to render the fall in 
the general rate of profits greater than it is necessary that it 
should be. It becomes important to diminish all sacrifices of 
the kind as much as is practicable, by distributing the taxation 
imposed among the various articles of consumption. And we 
may conceive the distribution to be so adjusted as not to inter- 
fere in any degree with the proportions in which those articles 
are consumed. 

It may be added that the unequal taxation of the various 
articles of consumption will induce the same transfers of 
capital and labour, as are consequent upon the unequal taxa- 
tion of the capital employed in the diflferent branches of 
industry. 



48 



374 TUB PBIIfCIFLKS OF 



CHAPTER XVI. 

THE SAME SUBJECT CONTINUED. 

After having inquired into the effects of taxing rents, the 
profits of capital, capital itself, and the wages of labour, I pro- 
ceeded to consider those resulting from the system of indirect 
taxation, on which, in modern times, so much reliance has been 
placed for supplying the wants of the public treasury. I shall, 
next, examine in succession the operation and ultimate 
incidence of certain taxes chiefly of a direct nature, most of 
which have been often imposed as collateral means for the 
same purpose. 

To begin, let a tax be imposed upon the land of a country ; 
and say on all land alike, whether cultivated or uncultivated, 
— whether employed for any useful purpose or not. In what 
respects will the effects be different from what they were shewn 
to be in the case of a tax on the rent of land ? I observe, in 
the first place, that if the value of land were determined exclu- 
sively by the present income derived from it, the portion of it 
which is in a state of nature, being suffered to remain in that 
state simply because it cannot yield the ordinary profits to the 
capital applied to cultivate it, would have no value whatever. 
When the tax is imposed upon it, its ownership will for this 
reason be abandoned to the government; to which it can be 
of no more service than it was to its former owner. Indeed, 
there is no reason why the owner, even before the imposition 
of the tax, should not have been quite as willing to aban- 
don all claim to the land, as to hold it. But the present 
value of land is determined, in a degree, by what its value at 
2i future period is expected to be. Very possibly, therefore, it 
might bear to have a tax imposed upon it of a certain amount, 



POLITICAL ECONOMY. 375 

though it be not sufficiently fertile or favourably situated with 
respect to a market to admit of its being profitably cultivated. 
Such a tax as this will evidently be paid at first by the pro- 
prietor of the land : and it must be also ultimately paid by 
him, because there is no one to whom he will be able to 
transfer it. 

The rent of land, employing the word rent as men com- 
monly do, may be the subject of taxation. This kind of rent 
consists of two elements, to wit, rent properly or technically 
so called, and the profits of the capital invested on the land by 
its owner. If the tax imposed be less than or equal to the 
former of these two elements, it will in fact be a tax on that 
element alone : if the tax be greater, it will, in part, become a 
tax on the profits of the capital invested ; and the consequen- 
ces will be a transfer of this capital as far as it admits of 
being transferred, together with the abandonment of the land 
as in the case just before considered. 

Similar consequences will result when the gross, instead 
of the net produce, of the land, is taxed, as in the case of 
tithes,— a.nd will result, indeed, from every supposable tax on 
the land. 

A repeal of the taxes, of which I have been treating in the 
present chapter, will, of course, be followed by consequences 
the opposite to those which ensued when the taxes were origi- 
nally imposed. To give only a single illustration, suppose the 
tithes paid in Great Britain for the support of the established 
church to be aboUshed. So long as the existing leases con- 
tinue, the profits of the farmers or tenants will be above the 
ordinary rate ; and so long will they enjoy the whole benefit 
conferred by the abolition of the tithes. But when their 
leases shall have expired, that benefit will necessarily pass from 
them to the landlords ; it being always in the power of the 
latter to exact from the farmers, in every instance, as much 
rent as will leave them the ordinary rate of agricultural 



37 G THE PHIUCIPLES OT 

profits, and no more. The whole benefit would, at least, be 
thus transferred to the landlords, were it not that a certain 
portion of land can now be cultivated with advantage, which 
was before incapable of yielding the ordinary profits to the 
capital invested upon it, and was incapable of doing so on 
account of the necessity of paying tithe. The cultivation of 
additional land will prevent rents from rising as much as they 
would otherwise do ; as they did not fall (on account of the 
necessity just mentioned) as much as they would otherwise 
have done, when the same land was obliged, by the imposi- 
tion upon it of tithe, to be thrown out of cultivation. And the 
diminution of the exchangeable value of agricultural products 
which will have taken place, — a diminution of value, without 
the occurrence of which rents would, indeed, have risen to 
the full extent at first mentioned, — will confer an advantage 
to a certain amount upon the community, at the expense, if 
the expression may be here used, of the landlords. Besides 
this advantage, which is no doubt smaller, and, very probably, 
much smaller, than that derived by the landlords from the 
augmentation of their rents, a peculiar advantage would 
result, from the repeal of tithes, to the parties by whom it is 
in the first instance paid, in their being relieved from the 
vexations unavoidably connected with the collecting of it ; 
aggravated, moreover, as those vexations are, by an impres- 
sion of tithes being paid, as well ultimately, as in the first 
instance, by those from whom it is levied by the government. 
The extraordinary expenses, too, of collecting so vexatious 
and therefore so obnoxious a tax, which have often to be 
incurred, would be saved to the public by its repeal. And I 
may add that we shall find an additional reason for its 
repeal, in the injury inflicted on the cause of religion itself by 
rendering the clergy, through whose instrumentality and for 
whose especial benefit, the tax in question was imposed, in 
a certain degree the objects of dislike or aversion to the 



POLITICAL ECONOMY. STJ' 

poorer classes of the people ; — not to mention the purely 
political considerations that ought to prompt to the adoption 
of such a measure. 

The question as to the most expedient mode of providing 
for the clergy is, however, foreign from the subject of the 
present ti'eatise ; and I am, therefore, not called upon to give 
my reasons why, in common with the universally expressed 
opinion in the United States, I hold to the voluntary system. 
Men may differ toto caelo concerning this matter, as they may 
do concerning the form of government best fitted for a parti- 
cular nation, and yet be ready to subscribe to all the essential 
doctrines of political economy. 

But whether, on the aboHtion of tithes, other taxes of an 
equivalent amount shall, or shall not, be substituted for them 
in order to provide for the clergy, it will be proper to impose 
such a tax on the land as may, in its effect upon rents, coun- 
teract that rise of them which would otherwise ensue. 
Unless something of this kind be done, a considerable part of 
■what was before the support of the clergy will have been 
taken from them, and simply handed over to the proprietors 
of the land. Should the diminished wants of the govern- 
ment not require the revenue which is to be derived from the 
suggested tax, it might, notwithstanding, be the most expedient 
course to impose this ; at the same time repealing one or more 
others. 



378 THE PRINCIPLES OF 



CHAPTER XVII. 

THE SAME SUBJECT CONTINUED. 

I NEED not dwell at any length on the several modes of 
taxation which are yet to be mentioned, as they must neces- 
sarily partake more or less of those already considered. 
They may be mentioned, also, in almost any order. 

Let a tax be imposed upon the sale of property, or upon 
contracts for the transfer of property from one individual to 
another at a future day. These taxes have this disadvantage, 
that they prevent in a certain degree the most profitable 
distribution of the national wealth. If we suppose the price of 
a certain article to be at such a rate as to induce its possessor 
to offer it for sale, but that a tax of the kind just mentioned 
is imposed before any sale shall have been actually effected, 
the inference is plain that the article in question would be 
withdrawn from the market, unless it can be sold at an 
advance above its former price equal to the amount of the 
tax. Now the individual who might have been willing to 
purchase it before, being thus obliged, in the event of his 
becoming a purchaser, to refund the tax exacted from the 
seller by the government, may very well refuse to purchase. 
And the article will have to remain in the possession of its 
present owner ; although, if transferred to some other indivi- 
dual, it might, very probably, have been employed more 
productively, that is with a greater profit, and, of course, 
more advantageously to the whole community. Should the 
tax be exacted from the purchaser, the conclusion to be drawn 
is obviously the same. 

The customary mode of deriving a revenue from the 
transfers of property, — a method recommended by the facility 
and very inconsiderable expense of collection, — is by requiring 



POLITICAL ECONOMT. 879 

the evidences of all contracts and sales to be recorded on 
stamped paper, issued by authority of the government, and 
having a different value according to the amount of property 
to be transferred. 

A tax bearing some analogy to the foregoing, because the 
circulation of commodities is impeded by it, is one imposed 
on their transportation from place to place. Such, for 
example, are the tolls which are levied upon carriages on 
roads, and upon boats on canals. They can be shewn to be 
ultimately incident, like every other tax upon the producers, 
on those who consume the commodities transported, and are 
therefore no more liable to objection than are the taxes in 
general that are paid by the consumers. 

Travelling, as well as the transportation of commodities 
from one part of a country to another, is a subject of taxa- 
tion ; and a moment's reflection will suffice to satisfy the 
reader that, whether imposed in the first instance on the 
traveller, or on the proprietor of the stage-coach or other con- 
veyance in which he performs his journey, the whole burthen 
of the tax will, in fact, be borne by the former. The advan- 
tage gained, or gratification received by him, will evidently, 
in this case as in every other, have to be paid for by the 
consumer. 

Both the descriptions of tax which have been last consi- 
dered are recommended by the facility of collecting them ; 
and there would be no ground for objecting to them under any 
circumstances, so long as they were not higher than a fair 
equivalent for the use of the communication by land or water 
along which passengers or goods are conveyed. This is a 
self-evident proposition. The only difficulty here is, — as to 
what is to be regarded as a fair equivalent for the benefit 
conferred. It may, indeed, be stated to be such a tax or toll as, 
after paying for keeping the road, or whatever the communi- 
cation may be, in repair, will enable the government to make 
the ordinary profits on the capital expended in its construe- 



380 THE PRINCIPLES OF 

tion. But how is this point to be determined ? If the business 
of road making were open to every member of the commu- 
nity to engage in it, there would be no need for us to concern 
ourselves on the subject. Competition would not fail to keep 
the rates of toll at their proper level, on the roads constructed 
by the government as on every other. A state of things like 
this exists in no country, and it may be regarded as one 
altogether out of the question. The making of roads, and of 
canals too, being every where monopolised, — I use this word 
in no bad sense, — by the government, or by parties authorised 
for the purpose by the government, more than the proper rate 
of toll may, it is plain, be exacted. Of every such pay- 
ment beyond the value received there would be good reason to 
complain, unless other taxes were at the same time imposed, 
bearing more particularly upon the classes of society not 
affected by the tolls of which I have been speaking. In a 
country however, like our own, where the commodities con- 
sumed have to be conveyed to very unequal distances, and 
where those who travel are of almost all descriptions of 
persons, it would be not a little difficult to discover any such 
compensatory taxes. This difficulty, together with the 
acknowledged principle of avoiding as much as is practicable 
the taxing of particular classes of the community, is, in gene- 
ral, a sufficient security against the excess of taxation of which 
mention has been made. 

Remarks similar to the above may be made in reference to 
the postage of letters. The government of a country should 
never look to the post office for a revenue. It ought to rest 
satisfied if the expenses of the institution are borne by those 
•who are directly benefited. I might, perhaps, with propriety, 
go even farther, and maintain the expediency, in so far as 
newspapers and periodicals are concerned, of making some 
sacrifice to promote by their circulation the diflfusion of 
knowledge, political and literary, among the great body of a 
people. 



POMTICAI. ECONOMT. 381 . 

Governments have not always contented themselves with 
taxing the transfer of property from one to another among 
the living, but have sometimes interfered between the living 
and the dead, by the imposition of a tax upon legacies, or 
upon the property generally of those who die. A tax of this 
kind, there can scarcely be a doubt, is, of all possible taxes, 
that which is paid with the least reluctance. The deceased 
owner of what is taken was permitted to keep quiet possession 
of it to the last moment of his life : and the heir or legatee 
will more readily pardon the act of the government in appro- 
priating to its own use a part of his predecessor's wealth, at 
the time when the remainder is transferred to himself than 
at any subsequent peri d. The disadvantage which may 
be imputed to this manner of raising a revenue is, that 
the productive consumption of the country is affected, by it in 
a greater degree than the unproductive. We may infer this 
from the circumstance of what is received from another at a 
period not previously determined, but depending for its occur- 
rence on a contingency, being regarded by the recipient as so 
much clear gain. He will be indisposed to economise his 
unproductive consumption in order farther to augm/ent his 
capital ; and the result will be a greater retardation of a 
nation's advance in wealth than if a tax had been avowedly 
imposed on the profits of capital, or even on capital itself. 

A tax was, a few years ago, imposed in Pennsylvania on 
collateral inheritances ; that is, on the property of those per- 
sons who die without leaving any children behind them. One 
advantage of such a tax is, obviously, the same in kind, 
though somewhat enhanced in degree, with that which was 
stated to subsist in the preceding case. The property inherited 
from more remote relations will have been regarded, before 
the possession of it is actually obtained, less in the light of 
property belonging to the heir, the enjoyment of which is only 
postponed for a time, than if it had descended from his imme- 
diate ancestor. He will, on this account, acquiesce still more 

49 



382 THE PRINCIPLES OF 

readily in a part being taken from him for public purposes, at 
the time of his becoming possessed of it. There is also 
another advantage which may be ascribed to a tax on colla- 
teral inheritances when compared with one upon inheritances 
descending from parent to child, to wit, that the children who, 
having had their own parents to provide for them, have 
besides had property left to them of the former description, 
will be relatively better able to sustain the weight of taxation. 
I need scarcely say that the disadvantages of taxing the 
different kinds of inheritances will correspond very much 
with their comparative advantages. If, indeed, the notion of 
some of the advocates of the tax under consideration had 
any foundation to rest upon, — the notion, I mean, that it 
would operate as an encouragement to matrimony, and thus 
tend to increase the population of the country, — it would be 
accompanied by a disadvantage of a peculiar nature. To 
contribute to such a result by the very measure adopted to 
take from the national wealth, or, what is the same thing, 
from the means of support of the community, would be alto- 
gether preposterous. It would be the decreeing the degrada- 
tion to a certain extent, in place of the improvement, of the 
condition of the people. But I have no idea of any one 
having been stimulated, by the collateral inheritance bill of 
Pennsylvania, to marry, with the purpose in view of evading, 
on his death, the payment of the tax imposed ; and the bill, 
in my opinion, was therefore, in this respect, perfectly harm- 
less. Nor do I think it probable that, amounting as it did to only 
a small per centage on the value of the inheritance taxed, the 
imposition of the tax in question has led to many removals 
of unmarried persons from the state. Such removals from 
it, implying too the withdrawal of capital, would have been 
necessarily injurious to it. The tax may be conceived to be 
so high as in fact to produce a considerable amount of 
injury. 

And I may be permitted to remark here that, after what 



POLITICAL ECONOMY. 383 

has been delivered in the second book of this treatise on the 
principle of population and the consequences flowing from it, 
the reader must perceive the absurdity of every measure, 
financial or otherwise, having for its object to increase the 
number of marriages. The governments by whom they have 
been enacted have been deplorably ignorant of the subject on 
which they undertook to legislate ; and they were, especially, 
unaware that the difficulty was not to multiply the numbers 
of a people, but to provide for them adequate means of 
support. 



CHAPTER XVIII. 



THE SAME SUBJECT CONTINUED. 



To tax judicial proceedings is, obviously, to render the 
administration of justice unnecessarily expensive : and worse 
than this ; because in proportion as the administration of 
justice is rendered more expensive to litigants, it is converted 
into the administration of injustice to the poorer classes of 
society. When injured in their property or otherwise, if the 
expense of a law suit be so great that they cannot afford to 
incur it, there is nothing left for them but to submit, as 
quietly as they may, to the injury inflicted. 

A poll tax, or tax, to an equal amount, upon every member 
of a community, or upon every member of it who has arrived 
at a certain age, is liable, in the same or a greater degree, to 
the objection which has been made to a tax on wages, 
namely, that more in proportion is taken by it from the 
incomes of the poor than from those of the rich. 

But it would be needless for me to notice all the varieties 



384 THE PRINCIPLES OF 

of possible taxation. The principles which have been 
explained, and the details already given, will enable the 
intcilii^ent reader to trace for himself the advantages or dis- 
advantages connected with any case that may be presented 
to him. I shall, accordingly, specify only two cases more, — 
a tax on exports to foreign countries, tmd a tax on dwelling' 
houses, or say on the rent of dwelling-houses. 

The former tax might, perhaps, have been treated most 
appropriately immediately after that upon imports from 
abroad ; but it is not easy to arrange in a manner wholly 
unexceptionable the discussion of the diflerent topics embraced 
in so comprehensive a subject as taxation ; and I shall be 
content if my arrangement shall have been such as is con- 
sistent with a perspicuous and logical exposition of my 
opinions. To proceed however, I remark that the merchants, 
who must necessarily pay the tax upon exports in the first 
instance, will no longer ship to foreign countries the same 
quantity of the articles taxed ; and their prices abroad will, 
in consequence, rise. This rise will continue until prices shall 
become high enough to enable the merchants to repay them- 
selves the amount of the taxes advanced by them ; when they 
will once more make the ordinary profits on their respective 
capitals. In this state of things, the lax will be incident on 
the foreign consumers. The articles taxed will not be con- 
sumed abroad as extensively as before ; and the quantity of 
thelrj. produced at home will therefore be also diminished. A 
transfer of capital must on this account ensue, bearing a close 
analogy to that which was shewn to take place when the 
exports of a country are diminished by the imposition of 
duties on imported commodities. Exports may be taxed so 
highly as very much to reduce the quantity of them con- 
sumed, or even to pre\'ent their consumption altogether ; just 
as the tax upon imports may be so high as to produce the like 
effects. While in the latter case the price of an article may 
have risen so much that a similar article may be produced at 



POLITICAI. ECONOMY. 385 

home at the same or a less price, or people may, rather than 
purchase it at the present rate, contrive to do without it ; in 
the former case, the price of an article may have risen so 
much that either a similar article may be produced abroad at 
the same or a less price, or people may contrive to dispense 
with the use of it altogether. The analogy between the two 
cases is, in short, complete, excepting only the circumstance 
of the lax imposed being, in the one, paid by the foreign, and, 
in the other, by the domestic consumers. 

Recourse has been very seldom had to taxes upon exports; 
and, in the United States, there is a provision in the constitu- 
tion of the general government, prohibitory of the imposition 
of any such taxes. Why has this been the case, and why 
this prohibition ? For if a tax upon exports is ultimately 
incident upon the consumers abroad, and a tax upon imports 
upon the consumers at home, — while the effects moreover, 
which are produced by the two taxes respectively, are in 
other respects so analogous as has been stated, — it would 
seem that the action of governments in the matter has been 
entirely wrong, and that they ought clearly to give a prefer- 
ence to a tax upon exports over one of imports. In our own 
country, too, the collection of the tax upon exports would, all 
other circumstances being the same, be more easy and more 
certain, from the more uniform nature of the commodities 
sent abroad, when compared with those received in return 
for them, as well as from the greater value in a given bulk 
they possess, generally speaking, and by possessing which 
they cannot so readily evade the payment of the tax im- 
posed. 

The most influential reason which can be assigned, why 
the exports of a country have been protected so extensively 
from taxation, is unquestionably to be found in the erroneous 
notions that have been less or more extensively prevalent with 
respect to the true nature of national wealth. When it was 
supposed that a country was wealthy and prosperous exactly 



386 THE PRINCIPLES OF 

according to the quantity of money in circulation, and when 
the possibility of maintaining always a permanent excess of 
exports above imports was every where adopted as a maxim, 
which excess was, besides, to be invariably paid for in the 
precious metals, it is not to be wondered at that the imposi- 
tion by any government of a tax upon exports, unless for 
some very peculiar reason, should have been regarded by its 
subjects, as well as by itself, as an absurdity, or even worse, 
— as a sort of treason against the state. 

Another reason for not taxing exports, rather than imports, 
has been, that the parties who are the immediate sufferers 
would, in all probability, complain much more in the former 
case than in the latter ; partly, perhaps, because a commodity 
which is to be exported, being in the actual possession of its 
owner, and capable of being disposed of by him in the country 
itself where he lives without the payment into the public 
treasury of any portion of what he receives for it, seems to 
his imagination to be more emphatically his property than 
is another commodity which is imported from abroad, 
and which can scarcely be said to have come into his 
possession, or to be his, until the duty upon the importation 
of it shall first have been paid ; — but especially, because the 
different classes of producers whose interests are affected 
disadvantageously, and who will be obliged to transfer their 
capitals from their existing employments to others, are more 
distinctly traceable in the case of a tax upon exports, than 
they are in that of a tax upon imports. 

But the question may be asked, — whether, consistently with 
the principles of political economy, as they have been deduced 
in the present treatise, it would not be preferable to impose 
duties upon commodities exported rather than upon those 
which are imported 1 Whether, in other words, it would not 
be better to levy a tax upon the foreign, than upon the 
domestic consumer ? The answer is plain, that it would be 
so, provided only that other countries would submit to such a 



POLITICAL ECONOMT. 387 

State of things without retaliating ; and whicii it may be taken 
for granted that they are not at all likely to do. If every 
government were to derive its revenue from the taxing of 
exports, and these were taxed everywhere in a similar pro- 
portion to their value, no advantage could possibly result to 
a country at the expense of any other. And if the system of 
taxation was not thus uniform, it appears to me that it would, 
far more frequently even than the existing tariff systems, tend 
to generate hostile feelings among nations, and to embroil 
them with each other. Where, indeed, any one nation was 
found to be obstinately adhering to the antiquated notions 
concerning the balance of exports and imports, or, to use the 
more technical language of former statesmen, of the balance 
of trade, they would deserve to be punished for shutting their 
eyes to the progress of knowledge which is going on 
all around them, by being obliged, in consequence of the 
imposition by other nations of a tax on exports, to pay 
tribute to them for whatever foreign products they consume. 

In relation to a tax on dwelling-houses, which is the only 
tax I propose yet to remark upon, I may mention that it is pre- 
cisely of the same nature, however it may be imposed, with 
some of the taxes already considered. When imposed upon the 
rent, as this term is commonly understood, paid by the tenants 
to the landlords, it is analogous in its effects and ultimate 
incidence to a tax imposed on the gross product of the land. 
It may not, however, be superfluous to trace those effects here 
as they successively occur, on the amount required being 
exacted in the first instance from the landlords ; furnishing, as 
in this case they do, a striking illustration of a transfer of the 
burthen of taxation from one class of persons to another. 

Let a tax, then, of ten per cent, be imposed on house-rent. 
It must, in the first place, be evident that, during the whole 
period of every existing lease of a house, the landlord can find 
no remedy for what he has thus to pay. If his rent was before 
$400, it will now be equivalent, in so far as he is concerned, 



288 I'lIE FRINCIPLKH OF 

to the sum of only $360. But when the period for renewing 
the contract between hmdlord and tenant shall again come 
round, will the former be able to get rid of the tax by in any 
way inducing the latter to pay him a higher rent, — to pay him 
$440 instead of 8400. Certainly not, so long as the supply of 
houses and the demand for them shall remain the same. The 
landlord got as much rent from his tenant before as he could; 
and there is no reason why he should now get more. He will, 
however, be making less than the ordinary profits upon his 
capital : a check will thus be given to the building of new 
houses ; the supply of houses will be gradually diminished, 
while the demand for them continues unaltered ; and house- 
rent will consequently be on the rise. Families which before 
occupied houses of a certain description will be content with 
those that are inferior: others which already lived in the 
smaller or inferior sort will be obliged to rest satisfied with 
merely occupying apartments in a house. This deterioration 
of the condition of the tenants will only cease when the ordi- 
nary profits are once more received by the landlords ; that is, 
when the whole of the tax imposed has become incident upon 
the tenants. Building will, of course, be then resumed, and 
the supply, in this case as in every other, be accommodated 
to the demand. 



rOLITICAIL BCONOMT. 399 



CHAPTER XIX. 

THE GENERAL PRINCIPLES OF TAXATION. 

What, now, are the general principles which should serve 
as a guide to governments in the enactment of a system of 
taxation 1 

I answer, first, that the amount of taxation should be as 
small as is possible, consistent with a due regard to the 
interests for the protection and promotion of which govern- 
ments are instituted. This remark may seem to be a very 
obvious and common-place one, even to those persons who 
are the least versed in political economy. My object, in 
nevertheless formally stating it, is to impress upon the reader's 
mind, as forcibly as 1 can, what is a productive and what an 
unproductive public expenditure ; agreeably to the meaning 
annexed to these terms in the present treatise. The writers 
who adopt the distinction between the productive and the 
unproductive labourers are led by it to designate all the indi- 
viduals employed and paid by the government, in the diflerent 
departments of the administration, executive, judicial, military, 
&c., as well as the government itself, as unproductive, — and 
the whole of the public expenditure likewise, without excep- 
tion, as unproductive. It will be recollected, on the other 
hand, that the various classes just referred to are considered 
by the author as all and equally entitled to be styled produc- 
tive ; and that, in his view, no portion of their labour or 
services ought at any time to be regarded as unproductive, 
unless where more persons are employed than are necessary for 
accomplishing the object proposed, or where that object is an 
improper one. The salaries or wages too, which the govern- 
ment pays for the labour thus styled productive, if they be no 

50 



390 Tin: PRINCIPLES OF 

more than a fair compensation for it, are necessarily a pro- 
ductive expenditure ; as is manifestly the case with every 
other expenditure on the part of the government for some 
legitimate object. Hence the greater portion of the public 
expenditure, and even the whole of it, may be conceived to be 
of a productive kind. If the last were in fact the case, so far 
from taxation having any tendency to diminish the existing 
wealth of a country, or to retard the progress of national 
wealth, its eflects will be exactly the reverse, in as much as 
what it takes from the people would, had it been left with them, 
have scarcely been at all productively consumed. And the 
inference cannot be resisted that, with an economical admin- 
istration of the government, — economical, I mean, in relation 
to the proper wants and duties of government, — taxation is 
no evil. I will add, in order to guard against any possible 
misapprehension of my meaning on a point of so much impor- 
tance and delicacy as this, that, when taxation is asserted 
under the circumstances supposed to be no evil, it is taken for 
granted that there is nothing in the manner of its apportion- 
ment among the community calculated to cause any unneces- 
sary vexation, or to press unequally upon particular classes, 
especially if these be the poorer classes. Let it be observed, 
moreover, that I have not asserted the probability of a govern- 
ment being administered with the strictest attention to 
economy. This has, indeed, been very seldom the case. 
Generally speaking, a government is tempted to expend pro- 
fusely and unnecessarily, exactly in proportion to its ability 
of extracting the means for so doing from the pockets of its 
subjects. 

To illustrate my meaning of the distinction between a pro- 
ductive and an unproductive public expenditure by the 
example of a standing army, I shall assume that, under the 
circumstances in which the United States are placed in respect 
to the nations with which they are Ukely to come into collision, 
and in respect to the Indian tribes on their frontiers or within 



POLITICAL ECONOMY. 891 

their borders, an army of 20,000 men is adequate for pro- 
viding against any emergency that may occur in the midst of 
peace, or for forming the nucleus of a still larger army in time 
of war. Now to maintain such an army would be a produc- 
tive expenditure ; on the supposition, however, of this expen- 
diture not being at an extravagant rate. And for the govern- 
ment to insist on maintaining an army of only 10,000 men, or 
to undertake to maintain one of 40,000, would be, in both cases 
alike, to cause the national wealth to be consumed less 
productively than it ought to be. The cajntal which might 
have been applied to the maintenance of the 20,000 men 
with the proper returns, will not yield proportional advantages 
if it be either diminished one half, or if it be doubled in 
amount. A diminution of loealth would result, of a nature 
precisely analogous to the loss of wealth that would be 
incurred, were the government of a country to regulate the 
investments of capital in such a manner as to cause to be 
produced twice as many or half as many hats and shoes, as 
would be produced should the hatters and shoemakers be 
guided by no other consideration than the relative wants of the 
community. 

It is no argument to prove the unproductive character of 
the soldiers of an army to say that if the men composing it 
were discharged they could and would be engaged in 
some productive employment, and that the same wages 
which maintained them before could still be applied to their 
maintenance while thus productively employed. I say this 
is no argument, because the like may be asserted'in reference 
to every other class of the communiy ; the criterion of the 
unproductiveness or productiveness of the labour employed 
being always the same, to wit, — is there, or is there not, 
more labour employed in any occupation than the interests of 
the community require ? 

If the expenditure of the government was always regulated 
with a single eye to the real interests of the governed, I may 



3<J;2 THK PRINCIPLES OF 

observe that all that part of my reasoning in' the foregoing 
chapters which was founded on the implied supposition of the 
national wealth being diminished, or its progress retarded by 
taxation, would have no foundation to rest on ; and the 
consequences deduced would be of no eflcct. Their effect 
too, in reality, will always be proportional to the unproductive 
expenditure of the government. 

The next general principle in reference to the subject of 
taxation I shall mention is, that, other circumstances being the 
same, it is desirable the taxes imposed should be so distributed 
as to give occasion to as few transfers of capital as possible. 
This principle has been frequently referred to in what pre- 
cedes ; and it is, therefore, already familiar to the reader. 
I shall, accordingly, merely remind him that, when no trans- 
fers of capital shall ensue on account of taxation, the various 
products of industry will be consumed in the very same pro- 
portions as before, and the community will not, besides the 
proper evils of taxation, suffer any of those collateral evils 
which result from the individuals composing it being obliged 
to consume what, but for the taxes imposed, they would not 
have chosen to consume. 

Another principle, closely connected with the preceding, 
is, cceteris paribus, that an old tax is preferable to a new one. 
To substitute the latter in place of the former is at the same 
time enacting that, on the one hand, more than the ordinary 
profits, and, on the other, less than the ordinary profits 
shall be made by the capitalists respectively employed 
in producing the commodities taxed. Although here, at first, 
what is one man's loss is another man's gain, yet there can 
be no doubt, as I have before explained, that the loss is 
uncompensated by the gain, if we estimate all the circum- 
stances of advantafre or of disadvantage concerned. In 
taking from one man and giving to another, the inconvenience 
or distress which the former suffers is never, in the scale of 
national happiness, or what is the same thing as wealth has 



POLITICAL ECONOMY. 393 

been defined, in the scale of national wealth, equivalent merely 
to the augmented command possessed by the latter over the 
necessaries and luxuries of life. But again, in the transfers of 
capital consequent upon the loss of which I speak, a certain 
portion of capital is always abandoned ; and although, by the 
abandoning of this, no additional loss is incurred, but rather 
(as I before mentioned in an analogous case) prevented, yet 
some idea of the actual loss, the reader will not fail to perceive, 
may be formed from it. 

A tax which will have the effect of lowering the profits 
received in a branch of industry where the circulating pre- 
dominates over the fixed portion of the capital invested, is 
preferable to one which will diminish the profits of capital 
where this is in a greater degree fixed than circulating. The 
truth of this proposition follows necessarily from the greater 
facility, generally speaking, of transfeiTing circulating than 
fixed capital. 

Taxes should be imposed rather upon a commodity which 
is prepared for final consumption than upon one which is in 
any degree the material on which labour is still farther 
exerted ; rather also upon such objects as cannot easily, on 
account of their possessing a great value in proportion to 
their bulk, or for any other reason, be subtracted from the 
operation of the taxes ; and they should be imposed with a 
view to readiness and economy of collection. After what has 
been stated, in the preceding chapters concerning taxation, 
the reader will not need any proof of these several propositions. 
I need not here repeat my reasons for not imposing a 
greater tax on one species of income than on another, or for 
preferring a direct tax on property to any other tax. 

Nor is it necessary for me to say any thing farther concern- 
ing the inexpediency and injustice of governments undertaking 
to travel out of their proper province, and to violate the rights 
of property, as they do when they sit in judgment on the 
distribution of the national wealth, determining at their 



304 Tin: PRiNcirLRS OF 

pleasure how much of" it shall belong to the rich, and how 
much to the poor; for this is what is in reality done by them 
when they take from the former, by means of taxation, any 
more than their proportional share. 

In opposition to the opinions, which, so far as I know, are 
universally prevalent, concerning ihe peculiar respect due by 
a government to the capital of a country, and concerning the 
pro|)riety therefore, in every system of taxation, of taxing in 
preference the unproductive, rather than the productive con- 
sumption of the community, I shall remark that, in my view, 
governments ought never to meddle, in any manner what- 
ever, with the proportions in which the wealth produced is 
destined by its owners to constitute their present or their 
future consumption; and that they ought to endeavour so to 
distribute the taxes imposed by them as not to interfere with 
the existing habits of the community as regards saving or 
spending. Indeed, if governments are entitled to interfere 
with those habits when legislating for the purpose of raising 
a revenue, why should they not interfere directly with those 
habits by the enactment of sumptuary laws, now every 
where condemned as an improper invasion of the rights of 
individuals'? 

To avoid all possible misconception of my meaning when 
laying down general rules for the imposing of taxes, I may 
state what is sufficiently obvious to every reflecting mind, 
— that those rules will often in practice be found to be incon- 
sistent with each other. As an illustration of this, I may 
adduce the instance of the same ad valorem duty on the 
importation from abroad of tea and coffee, and of jewelry, 
being out of the question, unless when the duty is a very lovtr 
one ; on account of the last article possessing comparatively a 
great value in a given bulk, and being, in consequence of this, 
easily made to evade the payment of the duty, or, in other 
words, being easily smuggled into the country. We may 
also conclude, if the rate of taxation be high, against taxing the 



POLITICAL ECONOJklY. 395 

importation of tea and coffee in a less degree than the importa- 
tion of jewelry, although the former articles, in the actual con- 
dition of society, partake largely of the character of a necessary 
of life, while the latter is manifestly a mere luxury. Other illus- 
trations cannot fail to present themselves to the reader on a 
little reflection. And in the case of taxation, as in every other 
where the rules of action deduced are found occasionally to 
clash with each other, all that can be done is to endeavour to 
reconcile them in practice as far as we can possibly contiive 
to do so. 

Before leaving the subject of taxation, it may be 
proper for me to mention, — what is, indeed, implied in the 
statements which have been already made, — that, just in pro- 
portion as a greater amount of the whole produce of labour is 
taken to itself by the government, will the general cost of 
production be enhanced. The effect will be the same as if 
labour had become less productive. Wealth and population 
will increase less rapidly than before ; or they may even be 
made to decrease. And the cost of producing a particular 
commodity, and consequently its price, may have been so 
much enhanced, as to diminish exceedingly the quantity of it 
consumed, and therefore produced. This remark, too, leads 
me to make another of considerable practical importance, to 
wit, that nothing is more common than for the government 
to miscalculate cgregiously the amount to be yielded by a 
new tax, or by the augmenting of an old one, especially 
where the article taxed is a luxury, and not a necessary of 
life, with the great body of the people. By doubling the 
tax imposed, the public treasury, instead of receiving twice 
as much, is not unfrequently a loser, on account of the 
diminution of consumption which results. The loss, however, 
is often in part only apparent ; since the parties who cease 
to consume, or who consume in less quantity than before, the 
article on which the tax has been augmented, will necessarily 
consume a greater quantity of other articles, and in all 



39G TUK PRiNciPLEi or 

probability a greater quantity of some of those which are the 
subjects of taxation ; and the revenue consequently, derived 
from these, will be larger than it was heretofore. 

When taxes, again, are lowered, it sometimes occurs that 
the public revenue is not only undiminished, but even becomes 
augmented in amount ; the more extended consumption of the 
articles on which they had been imposed, and from which they 
have been partially removed, more than compensating for the 
less amount paid by a given quantity of what is consumed, 
and for the loss which the treasury suffers by the contempo- 
raneous consumption of other articles which pay taxes having 
undergone a diminution. 

And I shall conclude the present chapter with the general 
remark that the changes which are consequent upon a repeal 
of taxes are precisely the contrary to those which ensue from 
the imposing of them, and that, after what has already been 
said concerning taxation, the reader may be safely left to 
trace them for himself. I proceed, accordingly, to the next 
topic in the natural order of discussion ; that, namely, of the 
effects resulting from the incurring, and the paying, of a 
national debt. 



CHAPTER XX. 



or A NATIONAL DEBT. 



Men are so much the creatures of habit, that while they 
are often content to pay a high amount of taxation which they 
have from year to year continually paid, they are apt to com- 
plain loudly of every new tax which is imposed upon them, 
as in a pecuhar degree oppressive. Hence it has been the 



POLITICAL ECOXOMT. 397 

policy of governments to add only gradually to the taxes of a 
country. To enable them to do so, they have sometimes had 
recourse to the accumulation of a treasure in a time of peace, 
as a provision against the exigencies of a state of war. That 
this provision should seldom have been found adequate for the 
purpose intended is not to be wondered at, when w'e bear in 
mind the warlike propensities of mankind, and the very slight 
pretexts which, from the earliest to the present day, have 
afforded occasion for national hostilities. In modern times, 
governments have resorted, in consequence of this, to public 
loans ; more particularly in countries where the government, 
from the manner in which it is constituted, is possessed of a 
certain degree of credit. The facility of borrowing has how- 
ever, as in the case of a surplus treasure, almost invariably led 
to an extravagant expenditure of the public money, and to the 
engaging in useless and even frivolous wars with other coun- 
tries; which, in their turn, have led to the continual extension 
of the borrowing or funding system ; the United States of North 
America furnishing a singular instance of the entire payment 
of a considerable national debt. 

At first view, it might perhaps appear to be hardly consis- 
tent with established principles that a naif n, which, instead 
of paying its debts, goes on for a considerable period augment- 
ing them, and augmenting them too until they amount to a 
sum so enormous as to take from the most sanguine minds 
almost, or altogether, all hope of their ever being paid, should 
notwithstanding maintain its credit, and continue, whenever 
it has occasion for so doing, to borrow yet more on reasona- 
ble terms. Yet such has been the fact in Great Britain, 
and that in despite of the most sinister predictions of her 
enemies, as well as of the more desponding of her own people, 
uttered repeatedly at different stages of the progress of her 
debt. And why this should have been so, is not a matter of 
very difBcult explanation. There are in every country a 
number of individuals who, if they were assured of the conti- 

51 



308 THE PRINCIPLES OF 

nued and punctual payment of the interest on the money 
loaned by them, would never be disposed to call for payment 
of their principal, or to complain of its being withheld from 
them. As the debt is, besides, made transferable from one 
individual to another, the national creditor needs be at no loss 
to realise any portion of it which he may hold, by the transfer 
or sale of it to some one else. The government, again, may 
not content itself with regularly paying the interest on the 
debt out of the funds generally received into the public trea- 
sury : it may pledge, for this purpose, the proceeds of certain 
taxes already imposed ; or rather, on the contracting of any 
new loan, it may impose additional taxes, the proceeds of 
which are to be thus appropriated. It may do yet more than 
this. At the same time that a provision is made for paying 
the interest of the national debt in perpetuity, if this should be 
required, the means may be procured, by another addition to 
the taxes imposed, for gradually extinguishing the debt itself. 
The process of extinction, however slow, is evidently a sure 
one, whatever may be the amount of the debt incurred ; that is, 
provided the government does not go on borrowing at the very 
time that it is paying oft' what it already owes, and borrowing 
too, as was for a scries of years the case in Great Britain, 
to a greater amount than it paid. Notwithstanding this, the 
British government was able to maintain its credit, so as to 
borrow continually on comparatively advantageous terms, 
on account of the punctual payment of the interest contracted 
for ; and of the confidence produced in the public mind, by the 
system of simultaneously augmenting the taxes to an amount 
more than adequate to meet such payment, that the country 
had not as yet attained to the limit of its resources, and that 
a national bankruptcy was therefore wholly out of the ques- 
tion, unless the institutions of the country should be all reck- 
lessly swept away by a revolution, in the worst sense of this 
term. 

But I have expressed myself rather too strongly. The 



POLITICAL ECONOMY. 399 

circumstances just mentioned were not the only ones which 
enabled the government of Great Britain to maintain the 
public credit unimpaired. There was an illusion extensively, 
and indeed universally, diffused concerning the nature and 
operation of the sinking fund, or sum annually set apart for 
the extinguishment of the debt, which contributed to that 
result. I allude to the notion that the fund in question was 
really operating to produce the effects for which it was 
created ; although, more money being annually borrowed than 
was paid to the existing creditors, the national debt was all 
the time rapidly increasing. In such a state of things, the 
sinking fund, however nominally the product of taxation, was 
in truth altogether a loan ; and its management consisted in 
the simple and very superfluous occupation of borrowing with 
one hand in order to pay with the other. 

In what respects is a national debt an evil ? In replying to 
to this question, there has been quite as much vague and 
unmeaning declamation as perhaps respecting any other point 
of interest in our science ; and the evil is often very much 
exaggerated, while it is sometimes entirely misconceived, and 
supposed to be of a very different nature from what it is in 
reality. The evil will be perceived by any one of my readers, 
who has made himself acquainted with the principles which 
have been explained in the first book of this treatise, to be 
dependent for its amount on the degree in which the -money 
borrowed has been unproductively expended. So far as it was 
necessarily or properly expended, its expenditure was a 
national good, and not a national loss. And the debt, instead 
of having been an evil, was a blessing ; just as a debt of an 
individual is to be regarded in that light which is productive 
to him of a gain, greater in amount than the inconvenience 
suffered by him from the necessity of paying the interest of 
the money borrowed. 

The circumstance, it is true, of a government being able to 
borrow the means of going to war on any emergency, or of 



400 THE rniNCiPLEs of 

enjrnf^infT in any expensive undertaking, has repeatedly led to 
a lavisli and useless expenditure of those means. In so far as 
this last may Iiavc taken place in any country, the debt will 
have been any thing but a blessing. 

But to look upon the wiiole of a debt as indicative of an 
unproductive consumption of an equal value having been 
incurred, is an errour of no ordinary magnitude ; an errour, 
too, not to be sustained by assuming the ground that, if what 
was borrowed by the government had not been expended in 
providing for the national defence, or for other purposes of 
public utility, but had been left in the possession of the people 
to be by them productively expended, population and wealth 
would have advanced more rapidly. The very same thing 
might, indeed, be said in reference to any other productive 
expenditure. For example, were the human species so con- 
stituted as to require no food for the sustaining of life, how 
much more rapidly would not wealth of every other descrip- 
tion, and therefore population, admit of being augmented in a 
given time! 

To make payment of a national debt will not remedy the 
expenditure unproductively of any portion of the money 
borrowed. If the public creditors or fund-holders reside 
within the country itself, such payment will be equivalent 
simply to a transfer of the amount of the debt from the 
pockets of the community in general to those of the creditors ; 
the community, on the other hand, being relieved, in time to 
come, from the payment of the interest. But to possess a 
given portion of wealth and to pay the interest upon it, is here 
manifestly the same thing in reference to the country regarded 
as a whole, as to part with that wealth and to be relieved from 
paying the interest. 

In the next place, let the debt be due to parties residing in 
foreign countries. Then if the rate of the interest to be paid 
be equal to the ordinary rate of the interest of money in the 
country itself, it is plain that the payment of the debt would 



POLITICAL ECONOair. 401 

amount to a sacrifice by the debtor-country of all the advan- 
tages to be derived from the possession of the wealth thus 
parted with, beyond the ordinary profits it is capable of 
yielding. I say beyond the ordinary profits it is capable of 
yielding ; because, even though all the wealth in question be 
not employed as capital, a given portion of what is so em- 
ployed is of no more exchangeable value, and therefore of no 
more advantage to the country, than is an equal portion of 
it that is consumed unproductively. And if the interest of the 
debt be less than the ordinary rate of interest or of profits in 
the country itself, as it in all probability will be when the 
national creditors are resident abroad, my readers will easily 
understand how the payment of the debt might be, to a certain 
extent, a public loss instead of a public gain. 

But by the payment of the principal of a national debt, 
the community will, under any circumstances, be saved the 
expense of collecting the taxes which are requisite for pro- 
viding for the interest; and be saved all the other inconveniences 
or annoyances less or more connected with the collection of 
those taxes. In addition to these savings, I know of no other 
advantages which can be derived from the paying off of a 
national debt, excepting only the moral efl^ect of such pay- 
ment in confirming the public credit, and in the impression it 
is adapted to produce on other nations of the magnitude of 
the national resources. 



402 THB PSINCIFLES OF 



CONCLUSION. 



In bringing the present treatise to a close, it may be proper 
for me to make a few remarks on some of the most impor- 
tant principles which I have aimed at establishing. 

I shall begin with once more calling the attention of 
the reader to my application of the term capital as 
well to immaterial as to material products. Of the prac- 
ticability of such an application of it, I may now assume 
that he can have no doubt. As to its expediency, I 
cannot but think that, if he will recur to the numerous discus- 
sions which occupy the preceding pages, he will perceive 
the analogy between material and immaterial products to be 
so very striking, that there is scarcely any important conclu- 
sion to which I have arrived respecting the one of these 
classes, which cannot be equally predicated respecting the 
other. To enable himself to perceive this analogy in the 
clearest manner, all that is necessary is for him to re-examine 
any portion of what I have written, and which he may consi- 
der to be vitiated in any degree by immaterial wealth having 
been comprehended in the definition of capital, — and while he 
re-examines it, to do so on the supposition of capital having a 
reference to matter alone. He will discover how very rarely 
it will be necessary to alter a single word, in order to render 
the language employed consistent with itself In my opinion 
too, he cannot fail to look upon the generahsation of the 
term in question, which I have ventured to propose, as 



POLITICAL ECONOMY. 403 

perfectly justifiable ; and not merely as perfectly justifiable, 
but also, like every other successful generalisation in science, 
as in a high degree expedient. 

To repeat a remark which was made by me before, the 
definitions of wealth and of capital should always be in 
keeping with each other. If the former have a reference 
only to matter, it will be proper to confine the latter likewise 
to matter only : if the former be made to comprehend imma- 
terial as well as material products, so should the latter. 
Moreover, by adopting the more comprehensive definitions 
of these terms, we are enabled to rid ourselves of the distinc- 
tion, so liable to a wrongful application, between productive 
and unproductive labour ; no labour being then to be stigma- 
tised as unproductive, excepting when a greater amount of it is 
employed in producing a commodity, than is required by the 
natural relation in respect to it of supply and demand. I may 
add that in applying the term wealth to the products of the 
intellect, we shall be enlarging the province of political 
economy, from a concern with our mere bodily wants, to the 
consideration of all the various circumstances which are 
capable of contributing to our prosperity or happiness ; and 
be thus conferring upon it a dignity which it would be other- 
wise far from possessing. 

In the next place, I may request of the reader to call to 
mind the frequent, and indeed continual use, that I have made 
of the theories of rent and of population, in the discussion of 
the most interesting practical problems which our science 
presents to us for solution. I hope too that, in doing this, he 
will agree with me in the opinion that to deny the truth of 
those theories, or even to give to them a secondary place 
among the doctrines of political economy, is to throw the 
science into utter confusion, and indeed to take from it all 
pretensions to the rank of a science. 

A proper understanding, too, of the principle of population 



404 TUB PRiNcri'LHa of 

discloses to us the moral relations of political economy ; rela- 
tions which confer upon it a peculiar dignity, and, I do not 
hesitate to say, elevate it to the highest rank among the 
branches of human knowledge. The great truth has thus 
been impressed upon us in the clearest manner, that the corii- 
mand of the great body of every community over tiie neces- 
saries and luxuries of life is determined in a much greater 
degree by moral than by physical causes ; and that its 
enlargement depends, therefore, in a much greater degree 
on the general diffusion of education, of morals, and of reli- 
gion, among the people, than upon the particular system 
of legislation that may be adopted by the government. 

Political economy is, nevertheless, very far from leading us 
to conclude that the form of government or system of legis- 
lation to be adopted is a matter of only slight importance. 
While, on the one hand, it checks the presumption of the 
statesman in substituting his own views, and not seldom his 
own very superficial views of expediency, for the wisdom of 
nature, it points out to him distinctly the cases where he can. 
interfere with tilings as they are with advantage to his fellow- 
men, and how rapidly he shall do so. Hence it is calculated, 
when its doctrines shall be more generally diffused than they 
are at present, to become the most efficient reformer of existing 
abuses ; for, where every step that is taken in the progress of 
improvement is taken in the right direction and at the proper 
time, no reactions will have to be apprehended. Hence too, 
the general diffusion of the doctrines of political economy 
will co-operate powerfully with the necessary effect of the 
continually extending influence of Christianity, in restraining, 
on the one hand, the tendencies to revolutionary measures, 
which are in our own day so widely prevalent among the 
more civilised nations of the earth ; and inducing, on the 
other, a reverence for the laws, and a readier acquiescence 
in their dominion. Such will be the results produced on the 



rOtlTICAI. ECONOMY. 405 

minds alike of all classes of the community. The more 
privileged and wealthy classes, instead of being disposed, on 
the principles of an absurd and rigid conservatism, to resist, 
at the outset, every proposal for a reform in the existing 
state of things, will become anxious for reforms to be intro- 
duced, fast enough to prevent any supposed necessity or pre- 
text for revolutionary action on the part of the multitude. 
And the people in general, now made aware that violent 
measures will often, by the reactions to which they are liable, 
retard the attainnnent by them of the objects which they have 
in view, will more readily consent to bear the evils of which 
they complain for a somewhat longer period, rather than 
plunge themselves, as well as every other class of the com- 
munity, at once into all the miseries, or even horrors, of a 
revolution. 

But it is not only by their tendency to operate on the minds 
of men in the manner which has just been described, that a 
diflusion of the doctrines of political economy is an object in 
the highest degree desirable, and that the revolutionary temper 
of the times can be allayed. Qv inculcating upon the rich 
and the poor that their interests, properly understood, are not 
in opposition to each other, as these parties, and especially the 
latter, are now so apt to imagine, and that to preserve the 
rights of property inviolate, never taking from the rich for 
the mere purpose of giving to the poor, is the most effectual 
means of permanently benefiting both, the political economist 
contributes effectually to remove the grounds of controversy 
between them, and to secure the internal tranquillity of society. 
And again, he contributes to secure this tranquillity, by point- 
ing out distinctly how much of the good and of the evil, 
which is the lot of mankind, flows from causes wholly inde- 
pendent of the constitution of the government under which 
they Uve, or of the manner in which it is administered. They 
are led, in consequence, not to attribute every evil endured by 

62 



406 THE PRINCIPLES OP 

them, and not readily traceable to other causes, to the mis- 
conduct of their rulers, or to that constitution of government; 
nor to expect any sudden and extraordinary advantage to 
result from mere political change. 

And while the science of political economy is adapted to 
shed a kindly and a peaceful influence at home upon the mutual 
relations of the different classes of society, it is equally 
adapted to exercise a beneficial influence on the mutual rela- 
tions of the different countries of the civilised world. It does 
this by putting the seal of its condemnation upon various 
barbarous practices, which are still tolerated by the law or 
the forbearance of nations; but especially by its promulga- 
tion in unequivocal terms of the great truth, that the pros- 
perity of any one country is conducive to that of every other 
with which it has intercourse ; and of this other great truth, 
that an entire and uninterrupted freedom from restrictions of 
every description would be the most desirable state of things, 
in respect to commerce, among all the nations of the earth, — 
a state of thinc;s in which each nation w-ould be able to derive 
the fullest advantage from the advances in wealth and pros- 
perity of every other, and in which the advantageous division 
of labour could be carried to the greatest extent. 

Finally, I may observe that the whole spirit of political 
economy, like that of Christianity itself, is a spirit of peace and 
good-will to all mankind ; and if civil contentions, or foreign 
warfare, shall hereafter occur less frequently than they have 
hitherto done, or, when occurring, shall be carried on with a 
greater degree of respect to the rights of individuals in their 
persons and property, all this will be owing, next to the 
wider diffusion of christian principles and practice, to the 
more general acknowledgment of the truths of our science. 

With the observations before him which have just been 
made in this " conclusion" of the present treatise, may the 
author not hope that his readers will agree with him in the 



POLITICAL ECONOMY. 407 

opinion, that political economy is not only entitled to a place, 
as he has already said, in the highest rank among the various 
branches of human knowledge, but that it is in fact the 
master science of the age in which we live ? And will they 
not therefore pronounce him to be in no wise extravagant, 
when he urges the study of it upon every individual in the 
community having leisure for the purpose, and especially upon 
every individual who aspires to the attainment of a liberal 
education 1 



( 400 ) 



ADDENDA. 



1, Is my second book, when I adduced the extensive use in 
Ireland of the potato as an illustration of the disadvantage of 
cheap food and dear luxuries, when compared with a state 
of things in which food was dear and luxuries cheap, I did 
not intend to imply that I was stating the only mode in which 
the use of that root by the people of Ireland has tended to 
deteriorate their condition. The other modes in which it has 
this tendency are stated by Mr. M'Culloch in the following 
manner. I quote from the valuable notes in his edition of the 
" Wealth of Nations." 

" In the first place : owing to the impossibility, as to all 
practical purposes at least, of preserving potatoes, the surplus 
produce of a luxuriant crop cannot be stored.up or reserved as 
a stock to meet any subsequent scarcity. The whole crop 
must necessarily be exhausted in a single year ; so that when 
the inhabitants have the misfortune to be overtaken by a 
scarcity,' its pressure cannot be alleviated, as is almost 
uniformly the case in corn-feeding countries, by bringing the 
reserves of former harvests into the market. Every year is 
thus left to provide sustenance for itself When, on the one 
hand, the crop is luxuriant, the surplus is comparatively of 
little use, and is wasted unprofitably ; and when, on the 



410 THE TRINCIPLES OP 

Other hand, it is deficient, famine and disease necessarily 
prevail." 

" In the second place : The general opinion seems to be, 
that the variations in the quantities of produce, obtained from 
land planted with potatoes, are decidedly greater than the 
variations in the quantities of produce obtained from land in 
which wheat or any other species of grain is raised." 

"And lastly: Owing to the great bulk and weight of potatoes, 
and the dilhculty of preserving them on ship-board, the 
expense of conveying them from one country to another is so 
very great, that a scarcity can never be materially relieved 
by importing them from abroad. In consequence, those who 
chiefly depend on potatoes are practically excluded from par- 
ticipating in the benevolent provision made by nature for 
equalising the variations in the harvests of particular countries 
by means of commerce, and are thrown almost wholly on their 
own resources." 

" For these reasons," continues Mr. MCulloch, " it seems 
as if the rapid extension of the potato cultivation was one of 
the most serious evils with which this and most other Euro- 
pean countries are now threatened." 

It is evident, I may add, that it is by frequently depressing 
for a time the condition of a people the circumstances above 
enumerated have a tendency 'permanently to depress their 
condition. 

2. When treating of paper-money and banking, the reader 
will recollect that my language, in general, had no reference 
to the deposites made with the banks by individuals, and 
which they were at liberty to withdraw again at their discre- 
tion ; and that the reason for this was the entire similarity in 
the nature of the business of a bank of circulation, whether it 
discounted the notes of individuals and issued its own notes 
on a capital of its own exclusively, or on an equal capital 
composed in part of that which was properly its own, and in 
part of the average amount of deposites in its possession. 



POLITICAL ECONOMlf. 411 

The reader will also recollect that I have all along estimated 
the efficiency of the different component portions of the cir- 
culating medium, as well by the comparative rapidity with 
which they circulate, as by their quantity. Having done all 
this, I supposed that it was unnecessary for me to state expU- 
citly any opinion as to whether the bank deposites were, or 
were not, a constituent portion of the circulating medium. 
Upon farther consideration, however, I have become some- 
what apprehensive lest my opinion on this point should, after 
all, be misunderstood. Accordingly, I now state that those 
deposites compose, I think, as much a portion of that medium, 
as if they were in the immediate possession of their owners. 
Indeed, they compose a more ethcient portion of it ; because, 
while they are held by the banks, they give occasion to the 
discharge of debts by means of bank checks, or of transfers 
on the books of the banks of an entry to the credit of one 
individual to the credit of another ; and because they furnish a 
basis on which a certain portion of the circulation of the banks 
is made to rest. 

To illustrate the last remark, and at the same time to guard 
against any mistake being made by the reader concerning 
another point in respect to which I may possibly not have 
expressed myself with sufficient distinctness, I may mention 
that, on the occurrence of an extraordinary demand for 
specie, this will be drawn from the banks, not merely in 
exchange for their notes, but also by the withdrawal of the 
deposites made with them. The consequence will manifestly 
be that the banks will curtail their discounts, and diminish the 
amouat of their paper in circulation, as well on one of these 
accounts as on the other; or failing to curtail sufficiently, 
will on both those accounts be obliged to suspend specie pay- 
ments. 

3. Since that part of my treatise relating to money and 
banking was written, a great variety of suggestions have been 
made for the purpose of correcting the evils of our existing 



412 THE PBI^'CI^LE8 OF 

system of banking. It would be scarcely worth while for mo 
now to go at any length into a discussion of these ; and 1 shall 
content myself w'ith a short notice of one or two among them 
that are of a nature to require it most. 

It has been proposed that the stock of every new bank 
should be always sold, in the first instance, at public auction 
to the highest bidder ; the excess of the proceeds of the sale, 
above the par or nominal value of the stock, to go into the 
treasury of the state. This would be a very convenient mode 
of transferring from the bankers to the pubUc the extraoidi- 
nary profits which they might otherwise receive, and of 
placing them on a level with all other capitafists. But, in 
itself, it would be evidently altogether unavailing to accomplish 
the great and desirable object of preventing the alternate 
expansions and contractions of the circulating medium, which 
are attributable to our American system of banking. Neither 
the holders of bank stock, nor the directors who are their 
agents, will be the less anxious to make large profits, 
or, which is the same thing, to receive large dividends, 
because they had originally to make purchase of the stock at 
a higher price. 

The measure accordingly, which has at the same time 
been proposed for checking the undue expansions, and conse- 
quent contractions of their circulation, by the banks, is to limit 
by law the amount of their dividends, by rendering it obliga- 
tory on them, where their annual profits exceed a certain per 
centage on their respective capitals, to pay over the excess 
into the public treasury ; which excess is then to be at the 
disposal of the legislature for any purposes to which the other 
portions of the money of which it disposes are applied. I have no 
hesitation in saying that, if we are much longer to have our 
present system of banking in any form, this would be a 
desirable modification of it. It is, however, not by any means 
free from objection. 

In the first place, while the advocates for it declare them- 



POLITICAL ECONOMY. 413 

selves to be opposed to the receiving hereafter by the state of 
a bonus as the price of incorporating a bank, the state will in 
reality be receiving such a compensation for doing this, and 
in two different ways ; by the excess of the price of the stock, 
when sold at public auction, over its par value ; and by the 
amount which may occasionally be paid into the public trea- 
sury, in consequence of more profits having been realised by 
the bank than is allowed by the act incorporating it. That this 
last will sometimes occur, will follow from the anxiety which 
the directors of the banks will naturally entertain to divide as 
much among their constituents, the stockholders, as the law 
allows them to do : to extend the circulation of their notes 
beyond what is necessary to accomplish this object, will be 
looked upon by them as erring on the safe side. Now I may 
ask if there be not some danger of the reception of such a 
bonus as this having the effect of disturbing the regular and 
impartial action of the legislature, when the question 
shall be brought before them of the re-incorporation of a 
bank ? Will not, quite probably, one bank have its charter 
renewed, and another be refused a renewal of its charter, on 
the ground that the one had been more liberal than the 
other in the tribute paid by it into the pubUc treasury"? 
And again, will not all this take place to an extent 
sufficiently great to diminish materially the advantages 
anticipated from the proposed restriction upon the busi- 
ness of banking ? 

But there will be an extraordinary inducement for the legisla- 
ture to multiply the number of banks, in the amount to be receiv- 
ed by the state from the sale of their stock in the manner before 
described. And although, as was before shewn, after a certain 
amount of capital has been already invested in banking, no 
new bank can obtain any share of the circulation excepting at 
the expense of that of the banks previously existing, and 
every incorporation of a new bank will therefore be interfering 

53 



414 THE FRINCIPLES OP 

with the profits of these banks, and will be reducing them 
more and more below the ordinary profits upon the value 
which was originally paid by the stockholders, there can be 
no doubt of the multiplication of the banks going on until at 
length no bank shall be able to make more than the ordinary 
rate of profit upon the par value of its stock ; when, too, no 
one would be disposed to invest his capital in the business of 
banking, rather than in any other branch of industry. At 
this point in the series of changes ensuing from the adoption 
of the measures under examination, and indeed long before it, 
it is plain that the restriction of the dividends or profits of the 
banks to a certain per centage would be wholly nugatory. I 
may add, what some of those who have proposed those mea- 
sures are scarcely aware of, that the state of things, thus 
shewn to be the ultimate consequence of their adoption, 
is very similar to that which would take place with a 
free trade in banking, comprehending, under the term 
banking, the issuing of a paper currency. This similarity 
in the two cases, my readers, after all that I have deli- 
vered on the subject of banking in my third book, will 
be able to perceive distinctly without any farther expla- 
nation on my part. 

I have said that the measures into the tendency of which I 
have been inquiring would be a desirable modification of our 
American system of banking, because they would without doubt 
for a time have the effect to alleviate the evils of the system ; 
and not because of their being likely to lead the way to the 
ultimate adoption of a free trade in the business of banking. 
By reducing, too, the profits of the capital invested in bank- 
ing to the ordinary rate of profits, they would, quite probably, 
abate the zeal of the holders of bank stock for the existing 
state of things, and prepare the way for the introduction, in 
place of a bank note circulation, of a circulation of treasury 
notes issued by the government, and constituted in some 



POLITICAI, HCONOMY. 415 

such manner as that described in the present treatise, — the 
only paper money which, in my opinion, combines all the 
advantages of bank notes, and which is at the same time not 
more susceptible of alternate expansions and contractions than 
specie itself. 



THE END. 



H. H.fl*^ 



